HMRC have issued draft guidance (including examples and notes) on the above the line research and expenditure credit (RDEC) which is available to large companies for expenditure incurred on or after 1 April 2013, as enacted by the Finance Act 2013. Comments thereon are requested by 31 January 2014.

By way of reminder, the expenditure credit scheme runs alongside the current large R&D company scheme deduction scheme until 31 March 2016 when the large scheme will cease.

The RDEC scheme does not alter the way qualifying activity is identified or how qualifying expenditure is calculated. It is only the method of giving the relief that has changed. For profit making companies, the credit discharges corporation tax that the company would have to pay but in addition allows companies with no corporation tax to receive an immediate benefit from carrying on R&D, either through a cash payment or a reduction of tax or other duties due.

The payable credit element is however subject to certain restrictions:

• The credit is first used to discharge the corporation tax (CT) liability of the claimant company for the same accounting period.
• The balance is subject to an adjustment which is available to discharge future CT liability.
• Any balance remaining is capped by the PAYE/NIC of the R&D staff (with no restriction for time spent on qualifying R&D activity) and R&D group provided externally provided workers (restricted to time spent on qualifying R&D activity). Any capped amount is carried forward and treated as an expenditure credit for the next accounting period.
• The amount remaining discharges corporation tax liability for any other period.
• If the company is a member of a group it may surrender any amount remaining for a corresponding accounting period.
• The payable credit element remaining is applied in discharging any other outstanding liability of the company to HMRC.
• Claims are subject to a ‘going concern’ test

More information is available on the HMRC website.