A lot has been written already about the new Expenditure Credit (EC) regime for R&D claims for large companies. However, there are a couple of practical issues that I believe are worthy of discussion. These issues relate to the use of the new “expenditure credit” to discharge the company’s liability to pay corporation tax.
The first point is that the legislation talks about the EC being applied in “discharging any liability of the company to pay corporation tax”. HMRC takes the view that this means the credit can only be used against an outstanding liability to pay, and not against one that has already been settled. This means that companies will need to have their R&D claims ready for submission before the tax is due if they want to use the credit to discharge that liability. Unlike the “old” Part 13 relief, it will not be possible to use the EC to generate a repayment of CT already paid.
For companies within the Quarterly Instalment Payments (QIP) regime, the position is complicated further. HMRC takes the view that, since the EC does not directly affect the computation of the tax liability (unlike the Part 13 relief), it cannot be taken into account in computing the actual amount due at each instalment.  However, the EC can be used to discharge the liability of the company to make the  instalment payments. Of course, given that all of the instalments for a year will have been paid (assuming they are paid on time) by 3 months and 14 days after the year end, it is possible that the EC claim will not be ready by then. In that case, the EC will have to be set against the following year’s instalments.
After the first year of claiming the EC, this will not really have any noticeable effect. However, in the first year of an EC claim, companies will find that (all other things being equal) their tax liability will actually go up. If they are on QIPs, they will have to pay the gross amount of that tax during the instalment period and will not see the benefit of the R&D relief until the following year (or possibly by the time of the final instalment payment if the claim is prepared in time). Companies not within the QIP regime will really need to have that first year’s R&D claim prepared before the tax is due, or the benefit will be deferred until the following year.