MPA Group Blog "Above the Line" - what does it mean for large company R&D Tax Credits?

"Above the Line" is accounting jargon for the entries in a Profit and Loss (P&L) statement showing all the categories of business income. The "Above the Line" scheme for Large Companies converts 10% of the value of eligible R&D spend into a line of cash income. This elevates the contribution made by R&D to the most visible part of the P&L. This level of profile makes it clearer to R&D teams and investors that innovation is making an immediate cash-positive contribution, as well as building long term value. It is payable irrespective of the actual profit or loss of the company. This clearly has immediate positive benefits for the cash flow of R&D oriented businesses. This change rectifies an anomaly in the Large Company Scheme which denied R&D credits to loss making firms. The credit, because it is treated as revenue will subsequently be subject to the business's normal rates of taxation and in typical cases £7,600 will be retained after tax for every £100k of eligible R&D investment. This is up from the £7,200 on offer on the current scheme which treats R&D purely as a cost and allows such costs to be uplifted by 30%. Businesses can opt into the "Above the Line" permanently with immediate effect and it will become mandatory by April 2016. There may be instances where it makes sense to remain in the current scheme and there are also limits on the total value claimable by loss making firms. For detailed advice on the ways the "Above the Line" Scheme impacts your business contact us.