R&D tax relief for large companies – the old and new rules
From 1 April 2013 a major change is being introduced to the R&D tax relief for large companies and SMEs which fall under the large company scheme. Rather than claiming a super-deduction as part of their tax computations, these companies will now be entitled to an R&D expenditure credit in respect of their R&D projects. This credit will be accounted for ‘above the line’, most likely as other income, in the profit and loss account meaning that the value of the R&D relief will be easily quantified and visible rather than being reflected in the tax line.
An R&D expenditure credit will also be available to loss making companies meaning that they can now receive a tangible cash benefit from their R&D projects whereas previously only additional losses could be created.
As a bit of background, there are two R&D tax relief schemes – one for small and medium sized companies and one for large companies. A large company is one with more than 500 employees or turnover and balance sheet in excess of €100m and €86m respectively. However, the large company scheme can also apply to SMEs if their R&D projects are subsidised or carried out under a subcontract arrangement.
The R&D tax relief for companies which fall under the large scheme is not as generous as that for SMEs in that the old super-deduction against taxable profits was an additional 30% of the qualifying expenditure rather than the extra 125% given to SMEs but the scheme can still offer significant tax savings, especially under the new rules, for those businesses to which it applies. The value of the new R&D expenditure credit is roughly equivalent to the tax savings available under the old super-deduction rules but the ‘above the line’ accounting treatment and the availability of cash repayments will make the new rules considerably more attractive.
The definition of what constitutes R&D under the large company scheme is the same as for an SME business so if a company transitions from one to another either through growth or, for example, the receipt of grant funding, its R&D projects will still qualify for relief, only at a different rate. There are some technical differences between the two schemes in terms of the types of expenditure which can be claimed but this is something that the Moore and Smalley R&D team routinely advise on as part of the R&D claims process. If you would like any further information please contact Tony Medcalf on 01772 821021.