The R&D expenditure credit was first introduced in 2013 and phased in to replace the Large Company (LC) scheme by 2016. The RDEC payment is an above the line cash credit for your business, currently payable at the rate of 20% of all of your eligible R&D expenditure.
RDEC is taxable at the normal Corporation Tax, while some of the main RDEC benefits include:
- RDEC is easy to forecast as they are independent of the company’s tax position.
- The RDEC figure is shown above the line in your accounts, making it more visible to aid future R&D decisions.
- Companies that are in a loss-making position receive a cash credit, which is one of the significant RDEC benefits over the old large company scheme that existed.
- It is applicable to all eligible innovations and R&D efforts outside of the arts, humanities, and social sciences.
To learn more about RDEC benefits and the RDEC scheme in general, contact us via the button below.
RDEC 7 Steps:
We specialise in guiding businesses through the complex RDEC scheme and ensuring that they receive the maximum benefit.
Offset the RDEC value against any Corporation Tax liability for the accounting period
The gross RDEC rate (20%) is utilised to offset your Corporation Tax liability for the specific period in which your R&D tax credit claim is applicable.
Adjusted to the net of tax amount
To ensure that only the net credit amount is eligible for cash payment if the remaining sum after step 1 exceeds the net value of the credit (gross credit minus Corporation Tax), the surplus is retained and carried forward for future utilisation.
Limit on R&D staff’s PAYE/NIC
The cash payment of the credit is subject to a maximum threshold based on the PAYE and NIC contributions made to HMRC for the employees included in your RDEC claim. Any excess amounts beyond the threshold can be carried forward for utilisation in subsequent periods.
Settlement of Corporation Tax liability for other accounting periods
Prior to the cash credit being disbursed, HMRC has the authority to offset it against any outstanding Corporation Tax obligations from previous accounting periods.
Choose whether to surrender the credit for group relief
You can transfer and allocate up to the available credit amount (including any amount limited in step 2) to another company within your group to offset their tax liability. Nevertheless, it is not mandatory to opt for this, as you can still receive a cash payment even if other companies within your group have tax liabilities.
Discharge any remaining obligations between your company and HMRC
Any remaining amounts at this stage will be offset by HMRC against outstanding taxes, if there are any. For example, unpaid PAYE or VAT liabilities.
Cash payment made by the company
The RDEC rate is the same for all large companies and is delivered as a percentage relating to all qualified expenses. Meanwhile, the fact that it’s paid net at the normal Corporation Tax rate of 19% means that every £1 spent on eligible costs will earn an 11p tax credit.
While the RDEC rate has increased several times since its introduction, the following figures are easy to follow:
- For the period of 1/4/2015 to 31/12/2017, the rate was 11%.
- For the period of 1/1/2018 to 31/3/2020, the rate was 12%.
- For the period of 1/1/2020 to 31/3/2023, the rate was 13%.
- Since 1/4/2023, the RDEC rate has been set to 20%.
To gain a better understanding of the RDEC rate and how it can impact your accounts, click the button underneath now.
RDEC Qualifying Activity
Under the RDEC scheme, the RDEC qualifying activity is defined by the Department for Business, Energy and Industrial Strategy. This is often referred to as the BEIS guidelines.
Generally speaking, though, it can be expected that the R&D items will count as RDEC qualifying activity under the RDEC scheme if:
- Are part of a development in science or technology.
- Relate to the creation of new products, processes or services.
- Relate to the modification of existing products, processes or services.
- Meet the standard BEIS guidelines definition.
RDEC qualifying activity can cover costs incurred from the start to the end of the project. To learn more or confirm that your activities are eligible, click the button below.
RDEC Qualifying Expenditure
The R&D Expenditure Credit qualifying expenditure under the RDEC scheme is typically applicable to eligible projects from when the technical or scientific uncertainty begins to when it is resolved.
The RDEC rate of 20% is applicable to following eligible R&D cost categories:
- Salaries (including company pension and NI contributions)
- Consumable items including water, gas, and electricity.
- Externally Provided Workers
- Contributions to Independent Research
- Software Licences
For more information on RDEC R&D Tax Relief and how RDEC could benefit your business, contact our experts now.