Research and development expenditure credit – making the most of your R&D

Weigh Up The Benefits Before Signing Up

Details of the new research and development expenditure credit (RDEC) have been clarified in Finance Bill 2013. The RDEC will apply in relation to the current accounting period for many businesses, which could mean an increase in both the effective tax rate and profit before tax. This could have a potential impact on your quarterly, interim and full-year results, so you’ll need to start thinking about the possible issues this creates for your business. The accounting isn’t straightforward and it’s important that you talk through the impact both internally and with your Accountants.

The draft legislation reflects the Budget 2013 announcement that the RDEC rate is to be 10%. It’s no longer a tax incentive but becomes more like a grant which is offset against the research and development (R&D) cost in your profit and loss account. The credit will be available for loss-making companies, but we can now see the restrictions on the credit payable. We’re expecting further changes to the legislation.

There are also other issues you need to think about, including:

• the transfer pricing impact, particularly if you’re a group undertaking contract R&D
• the impact for budgeting for future R&D and effective tax rates
• any impact on your company’s bonuses, if they’re determined by profit before tax, and
• the need for real-time methodologies for compiling claims.

It’s important that you weigh up the benefits and the associated issues before you opt into the RDEC. Also, because of the increased visibility of an above-the-line credit, there’s likely to be much more pressure on your business to compile the claim quickly after the year end. This makes sure that an accurate claim can be included in your accounts but may also result in faster repayment of the credit.

If you need any advice on this or any other matter, please get in touch.