What is the accounting treatment for R&D tax credits?

If your accounting period began 1 April 2023 – 31 March 2024:

• Under the SME scheme – R&D tax credits are simple to account for – they are non-taxable, meaning they only impact tax liability
• Under the RDEC scheme – R&D tax credits can be acknowledged as above the line in the accounts, resulting in your profit before tax. The financial boost received under the RDEC scheme is therefore subject to taxation

If your accounting period begins on or after 1 April 2024, your claim will fall under the merged R&D tax relief scheme. You could receive a single taxable expenditure credit set at 20% of qualifying R&D costs. The credit is generally treated as ‘above the line’ in your profit and loss account, increasing your income before tax. It is taxable and can either:

• Reduce your corporation tax liability if you owe tax
• Be paid as a cash credit (subject to caps and restrictions) if you make a loss
  

For accounting purposes, companies may present the credit in line with IAS 20 / FRS 102 grant-accounting principles – typically recognising it as other income that offsets the related R&D expenditure.

Consistency and compliance with UK GAAP or IFRS remain essential when determining the appropriate accounting treatment.