Definition
An above-the-line credit, also called an expenditure credit, is a form of R&D tax relief that appears as taxable income in the company's profit and loss account, above the operating profit line. The pre-tax credit is recognised as other operating income, and the related corporation tax charge on it is reflected in the tax line. This contrasts with the former SME enhanced deduction, which reduced taxable profit only. From 1 April 2024 the UK's merged R&D scheme is delivered entirely as an above-the-line credit.
How HMRC defines it
HMRC's guidance on the above-the-line mechanism is set out at CIRD89750 and across the RDEC sections CIRD89700 to CIRD89850. The accounting treatment is consistent with the UK GAAP Framework, specifically FRS 102 Section 24, which permits government grants and equivalent credits to be recognised as other income where conditions are met.
Practical example
A profitable engineering company with £1,000,000 of qualifying R&D expenditure in its year ended 31 March 2025 recognises a 20% above-the-line credit of £200,000 as other operating income. Corporation tax at 25% is charged on the credit, leaving a net post-tax cash benefit of £150,000, or 15p per £1 of qualifying spend.