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Above The Line

Above the Line (ATL) Tax Credit

The ATL Tax Credit also known as R&D Expenditure Credit (R&DEC), is a new scheme designed to incentivise large company investment in R&D by enabling companies to take the credit ‘above the tax line’ in the profit and loss account, so that the visibility and certainty of the relief is dramatically increased for large companies; potentially making investment decisions easier and cheaper. The ATL can be claimed on expenditure incurred on or after 1st April 2013. The ATL regime is elective and runs in parallel to the existing regime for large companies until April 2016. The ATL is ultimately convertible to cash, subject to detailed offset provisions against corporation and other taxes and an R&D staff costs PAYE/ NIC cap.

In the 2014 autumn statement, the Government increased the rate of the new R&D credit to 11% of qualifying expenditure from 10%, before tax is deducted. The net of tax benefit rises to 8.8% by 2016, compared to the falling benefit of the existing 130% enhanced deduction regime, as set out in the table below. This gives companies additional incentive to elect into the new regime early.

 Year CT rate Net tax benefit (RDEC) Net tax benefit (existing regime – enhanced deduction)
 2013/14  23% 8.47% 6.9%
 2014/15  21% 8.69% 6.3%
 2015/16  20% 8.80% 6.0%

This is an exciting proposition for many large businesses, especially those not deriving significant benefits from the existing super deduction available under the R&D Tax relief scheme. In summary;

  • The ATL Tax Credit can be claimed by Large Companies and SMEs who fail certain criteria for the SME R&D Tax Relief
  • Both the super deduction scheme and ATL Tax Credit are available until 2016, when the super deduction scheme will be withdrawn.
  • The relief becomes more visible to stakeholders and R&D decision makers
  • Moving the relief ‘above the line’ improves EBIT / PBT

The following table summarises the comparison of a claim for a profitable company under three different regimes for the year 2015/16

No Claim Large Company Scheme     ATL
TURNOVER £150,000 £150,000 £150,000
R&D EXPENDITURE -£100,000 -£100,000 -£100,000
ATL CREDIT @ 11% £0 £0 £11,000
PRE-TAX PROFIT £50,000 £50,000 £61,000
ENHANCED DEDUCTION £0 -£30,000 £0
TAXABLE PROFIT £50,000 £20,000 £61,000
CTR @ 20% £10,000 £4,000 £12,200
ATL CREDIT £0 £0 -£11,000
TAX PAYABLE £10,000 £4,000 £1,200
TAX SAVING £0 £6,000 £8,800