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The 2013 Finance Bill published on 11 December 2012 includes the draft legislation for a new mechanism ("Above the Line" – ATL) for large companies to obtain relief for their R&D expenditure.
Whilst the definition of R&D and the qualifying cost categories have not changed, the way the relief is given will change.
The new rules will be optional for expenditure incurred on or after 1 April 2013 and will be mandatory from 1 April 2016. During the three year optional period the current "below the line" 30% additional relief still applies.
The new 9.1% credit creates additional income in the company’s accounts and, therefore, will require companies to collate the claim in advance of finalising their accounts. This will increase the taxable profit and is then offset against the company’s tax bill. Loss-making companies will be able to obtain a repayment of the credit although there is a seven stage calculation process to consider.
Of course, many claimant companies fall within the SME definition, which is a very generous definition, and the current SME scheme is not being replaced with an ATL system. However, it is disappointing that SMEs forced into the large scheme due to being subcontractors or having subsidies may end up having to claim using two different methods, thus creating an additional administrative burden. Our response to the consultation was that this should be prevented but alas we will have a 2-tier system by 2016.
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