Research & Development Expenditure Credit (“RDEC”)

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Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Research & Development Expenditure Credit (“RDEC”)

What is RDEC?

We used to have SME Relief and Large Companies Relief. The latter was replaced by the Research and Development Expenditure Credit or RDEC.

It is the only relief that non-SMEs or large companies can claim.

It will also potentially be relevant for any SME companies that cannot claim SME relief for various reasons. These circumstances might include:

  • Expenditure that exceeds the €7.5m project cap;
  • Where the SME has received a subsidy;
  • Where R&D has been subcontracted to it by a large company; and
  • Where R&D has been subcontracted to the SME by a non-UK co

RDEC Overview

Qualifying expenditure for large companies is largely the same as for the SME. However, there are some minor modifications.

The form of RDEC

The tax relief is provided in a different manner.

A % of the qualifying expenditure is brought in as a trade receipt. This both:

  • Increases profits;
  • May affect quarterly payments of the Company

The same amount is then given as a tax credit versus the resulting corporation tax liability (after the adjustment above).

RDEC percentage rate

The percentage rate was 12% for expenditure occurred up to end of March 2020.

From 1 April 2020, this has increased to 13% as announced at Budget 2020.

RDEC example

A large company has taxable profits of £1m for year end 31 March 2020

It spends £150k on qualifying R&D projects.

It makes a claim for RDEC

  • Step 1: Bring in £18k (£150k x 12%) making taxable profits = £1.018m

  • Step 2: Tax at 19% = £193,420

  • Step 3: Deduct credit of £18,000

  • Tax due: £175,420 (£193,420-£18,000)

Subcontracting

Generally, there is no relief where a large company subcontracts R&D to another person.

We’ve seen earlier that the SME company doing the work can claim RDEC relief in these circumstances.

Claiming RDEC

Again, must be made within 2 years of the end of the relevant accounting period.

Claims made:

  • In the tax return; or
  • In an amended return

If you have any queries about RDEC, or R&D tax relief at all, then please do not hesitate to get in touch.

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