Research and Development Above The Line credit

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For further explanation on claiming Research and Development Expenditure Credit read the following article: https://www.taxadvisermagazine.com/article/taking-credit

This tab is for claiming the Research & Development Expenditure Credit (RDEC). The data entry fully supports the new CT600L supplementary pages which must be submitted for all claims to Research & Development tax credits from 6/4/2021. 

2021.12 Release Update 

The release contains an update to the Above the Line tax credit: 

  • Correction to the Step 2 Corporation tax charge on the calculated credit to reflect the correct treatment of the amount of credit surrendered from group   
  • The relocation of the Step 3 expenditure credit brought forward field from Step 3 to Step 1 as requested by HMRC.   
  • The removal of the HMRC online filing validation that prevented the filing of a CT600L included a Step 3 expenditure credit brought forward. 

As a result of the removal of the online filing validation the change in the calculation of the Step corporation tax charge on the calculated credit is applied automatically where the Tax Return has not been locked. As the return could not be locked due to this validation if the CT600L has already been filed on paper please review the information in this data entry and consider whether there is a requirement to submit an amended CT600. This calculation change does not affect the amount of payable tax credit claimed.  

Step 1

  • ‘Claim Above The Line Research & Development Expenditure Credit?’ Tick the box to indicate a claim for credit under the RDEC scheme.
  • Qualifying expenditure’ Enter the qualifying expenditure for the period. This field is for claims being made by large companies only.
  • ‘SME expenditure sub-contracted to it by a large company’ – enter the amount of expenditure incurred by an SME on work sub-contracted to it by a large company. This field will not be editable if there is a value in Qualifying expenditure as HMRC validations do not permit it.
  • ‘SME capped or subsidised expenditure’ – enter the amount of expenditure of an SME which has been capped or subsidised. This field will not be editable if there is a value in Qualifying expenditure as HMRC validations do not permit it.
  • ‘Total qualifying expenditure’ – a calculated total of the expenditure as entered in the fields above.
  • Rate’ Select the rate, from the drop-down list, that applies to the expenditure, this is 12% for large companies and 49% for ring-fenced trades.
  • Calculated tax credit‘ Taxfiler will display the maximum calculated tax credit for period based upon the total expenditure multiplied by the prevailing rate.
  • ‘Amount surrendered from group‘ Enter any tax credit surrendered from other group companies.
  • Step 3 expenditure credit brought forward’  enter the amount of any expenditure credit brought forward from the previous period. Taxfiler will automatically bring forward the amount from a previous period when creating the next period. 
  • Research and Development tax credit’ Taxfiler displays the total tax credit, including surrendered tax credits.
  • ‘Step 2 restriction b/fwd set against CT liability’ Taxfiler will automatically use the maximum Step 2 notional tax restriction brought forward to discharge the Corporation Tax liability for the period. The notional tax brought forward is used to discharge the CT liability for the period before using the tax credit arising in the period. Enter the full amount of the notional tax restriction brought forward from the previous period in the ‘Corporation Tax charge restriction b/fwd’ field below.
  • ‘Total tax credit available for set off against current CT liability’ – the total tax credit available to discharge the CT liability for the period including the Step 2 notional tax restriction brought forward is displayed here.
  • Amount to offset against Corporation Tax for this period’ Taxfiler will automatically display the amount of the tax credit being used to discharge the current period CT liability. Note that this value represents the amount of the CT liability less any amount of income tax deducted from income.

Step 2

  • Amount remaining after set-off’ Taxfiler displays the amount of the tax credit remaining after set-off against the CT liability for the period.
  • Calculated credit less CT at main rate‘ Taxfiler will calculate the net R&D tax credit as reduced by the amount of Corporation Tax payable at the relevant rate.
  • ‘Net expenditure credit (inc.  Step 3 brought forward)’ This amount is automatically calculated by Taxfiler and is the Calculated credit less CT at main rate plus any Step expenditure credit brought forward not used to discharge any corporation tax liability for the current period.    
  • ‘Corporation Tax charge restriction b/fwd’ – enter the amount of the Step 2 notional tax charge restriction brought forward form the previous period.
  • ‘Corporation Tax charge on the calculated credit’ – this value is automatically calculated by Taxfiler. The ‘notional tax’ charge is calculated when the Amount remaining after set-off is greater than the Calculated credit less CT at main rate.
  • ‘Amount of CT Charge surrendered to group member’ – enter the amount of the notional tax charge being surrendered to a group company.
  • ‘Step 2 restriction carried forward to next period’ – Taxfiler will automatically calculate the amount of the Step 2 notional tax charge to carry forward to the next period. This is the sum of Corporation Tax charge restriction b/fwd less Step 2 restriction b/fwd set against CT liability plus Corporation Tax charge on the calculated credit less Amount of CT Charge surrendered to group member.

Step 3

  • Lower of amount remaining and net expenditure credit’ Taxfiler will show the lower of the tax credit remaining after set-off and the calculated credit reduced by CT.
  • ‘Expenditure credit brought forward’ – enter the amount of any expenditure credit brought forward from the previous period.
  • ‘PAYE and Class 1 NIC liabilities for the period’ The credit that can be claimed in a period is capped by the PAYE/NIC of the R&D staff (with no restriction for time spent on qualifying R&D activity) and externally provided workers provided by the same group as the claimant (restricted to the proportion of time spent on qualifying R&D activity). Enter the total amount of applicable PAYE and Class 1 NIC for relevant workers.
  • Expenditure credit carried forward to next period’ Taxfiler displays the amount which exceeds the cap. This should be carried forward and treated as an expenditure credit for the next accounting period.

Step 4

  • Amount available for set-off‘ Taxfiler displays the net amount of capped RDEC available for set-off.
  • Amount to set against Corporation Tax for other periods‘ Enter the amount required to be set off against Corporation Tax for other periods.

Step 5

  • Amount surrendered to group‘ Enter the amount to be surrendered to other group companies.

Step 6

  • ‘Amount set off against other liabilities in this return’ – this amount is automatically calculated by Taxfiler. Other liabilities relate to payable tax in respect of Loans to Participators, Controlled Foreign Companies, Bank levy and Bank surcharge. This is a requirement for the correct population of the new CT600L supplementary pages. Any relevant liabilities will be discharged using expenditure credit first before settling the liability using the Research & Development tax credit.    
  • Amount set off against other company liabilities’ Enter the amount required to set-off against other company liabilities to HMRC.

Step 7

  • Payable Research & Development Tax Credit’ Taxfiler displays the final payable tax credit.