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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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R&D Tax reliefs: R&D expenditure credit (RDEC) scheme: example 3: profit-making company but RDEC exceeds liability

Application of S104N FA2013

STEP 1

The set off amount is to be applied in discharging the corporation tax liability of the company for the accounting period.

Turnover   £15m
     
     
  Other Income   
</u>RDEC (@10%)   £1m
  Expenditure  
    £12.5m 
  R&D  
  £10m  
  Other  
  £2.5m    
  Profit   £3.5m
       
  CT profits   £3.5m @ 23% £805,000
       
  CT Liability   £805,000
   
  RDEC amount remaining
       
  (after discharging liability)   £195,000
 

The £195000 is the amount of payable credit remaining after discharging the company liability for the period.

STEP 2

If the amount remaining after Step 1 is greater than the net value of the set-off amount that amount is to be reduced to the net value of the set-off amount.

Compare the amount remaining after step 1 with the net value of the credit i.e. after deducting the main rate of potential corporation tax on the credit.

Amount remaining from Step 1 £195,000 (1) with
     
     
  Net expenditure credit (£1m less 23%) £770,000 (2)
     
  c/fwd lesser of (1) and (2) to Step 3 £195,000
 

STEP 3

If the amount remaining after Step 2 is greater than the company’s total expenditure on workers for the accounting period (see section 104P)—

e) that amount is to be reduced to the amount of that expenditure (which may be nil),

and

f) the amount deducted under paragraph (a) from the amount remaining after step 2 is to be treated for the purposes of this section as an amount of R&D expenditure credit to which the company is entitled for its next accounting period.

The company’s total expenditure on workers is based on the R&D workers’ PAYE and NIC (with no restriction for time spent on R&D activity), and R&D group externally provided workers (but restricted to time spent on qualifying R&D activity)

b/fwd from step 2 £195,000 (3)
     
     
  Relevant PAYE/NIC £400000 (4)
 

If (4) is less than (3) then amount is capped to that relevant PAYE/NIC. £195000 c/fwd to step 4.

STEP 4  

The amount remaining after step 3 is to be applied in discharging outstanding liability of the company to pay corporation tax for any other accounting period.

b/fwd from Step 3 £195,000
     
     
  Other period CT liability £50,000
     
  Balance c/fwd to Step 5 £145,000
 

£50000 has been used to settle another year’s company liability.

STEP 5

If the company is a member of a group, it may surrender the whole or any part of the amount remaining after step 4 to any other member of the group (see section 104R).

b/fwd from Step 4 £145,000
     
     
  CT liabilities of the Group £ nil
     
  Balance c/fwd to Step 6 £145,000
 

STEP 6

The amount remaining after step 5 is to be applied in discharging any other liability of the company to pay a sum to the Commissioners under or by virtue of an enactment or under a contract settlement.

b/fwd from Step 5 £145,000
     
     
  Set off against any other liability £ nil
     
  Amount remaining £145,000.
 

STEP 7

The amount remaining after Step 6 is payable to the company by an officer of Revenue and Customs but subject to S104S i.e. that the company is a going concern.

Payable to company £145,000
     
     
  Summary  
  Discharge against current liability (Step 1) £805,000
     
  Set off against company liability fro another period (Step 4) £50,000
     
  RDEC paid (Step 7) £145,000
     
  Total £1,000,000