Above-the-line credit

A look at what the credit means for R&D


Budget 2013 announced the introduction of an above-the-line credit for research and development (R&D) expenditure incurred by large companies on or after 1 April 2013.

The above-the-line credit is designed to increase the visibility of large company R&D relief and provide greater cashflow support to companies with no corporation tax liability.

R&D expenditure credit may improve earnings before interest and tax and that might have an effect on bonuses awarded to employees.

The amount of the R&D expenditure credit (RDEC) to which a company is entitled for an accounting period is the relevant percentage of the amount of the company’s qualifying R&D expenditure for the period.

The relevant percentage is 10% or 49% in the case of ring-fenced trade (eg oil and gas extraction activities).

The credit will be brought into account as a receipt in calculating the profits of the trade for an accounting period. The gross credit will be taxable.

The company is entitled to an RDEC for the accounting period if the company has qualifying R&D expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the accounting period.


The underlying rules for identifying qualifying activity and calculating qualifying expenditure remain unchanged.

A company cannot make a claim for an R&D expenditure credit and a claim for relief under Part 13 of CTA 2009 (additional relief for expenditure on research and development) in respect of the same expenditure.

Once an RDEC claim is made, the company is locked in for that and subsequent accounting periods.

The above-the-line credit scheme will initially be optional and companies will be required to elect to claim R&D relief under this scheme.

Companies that do not elect to claim the above-the-line credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016.

The above- the-line credit will become mandatory from 1 April 2016.


The credit is ultimately convertible to cash, but there are detailed offset provisions against corporation and other taxes, and there is an 'R&D staff costs PAYE/NIC cap' to consider first.

There is also a restriction to the payment of a credit if the company is not a going concern, or where the company’s tax return is being enquired into.

A company will become entitled to the credit where it becomes a going concern again within the time limits for amending the tax return.

Further information

One of the key features of the proposed corporation tax reforms is to create a more favourable tax regime for expenditure on innovation and intellectual property.

It is encouraging to see that the government has continued its commitment to create a more favourable tax regime for such expenditure.

The existing, more favourable R&D regime continues for small and medium-sized companies.

You can download the ACCA Guide to R&D  from the 'Related documents' section.