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Research and Development Expenditure Credit (RDEC) Scheme

Your business does not have to be large to have to claim under the large company Research and Development Expenditure Credit (RDEC) scheme. We can help you make sense of the RDEC scheme and prepare your claims here.
What is the RDEC Scheme?

What is the RDEC scheme?

The RDEC scheme is an incentive provided by the UK government to encourage large companies or businesses with funded R&D to undertake innovation and development activities. The relief is based on the research and development costs that your company incurs. You may qualify for the RDEC scheme if you fall under one of the following conditions:

  • 500+ employees
  • €100 million turnover
  • €86 million balance sheet

RDEC can also be claimed by small and medium-sized enterprises (SMEs) who have been subcontracted to do R&D work by a large company or who have received a grant or subsidy for their R&D project. Many SME businesses do not understand this split and either claim incorrectly or miss out on substantial additional benefits.

What are the benefits of claiming RDEC?

What are the benefits of claiming RDEC?

An RDEC claim is worth 13% of your qualifying expenditure (this rate applies to expenditure incurred on or after 1 April 2020). However, because the RDEC rate is paid net of corporation tax, the rate is effectively 11% taxable credit with earnings before interest and taxes (EBIT) impact. The benefit will be the same for profitable and loss-making businesses.

What costs qualify for RDEC?

What costs qualify for RDEC?

The following costs may qualify for RDEC relief:

  • Employee costs - directly or indirectly involved in R&D
  • Agency staff - costs for those directly or indirectly involved in R&D
  • Utilities - fuel, power, or water
  • Materials and consumables - items used in the R&D project
  • Software - used by the R&D team
  • A limited amount of subcontracted R&D expenditure. This will include payments to universities, individuals, or partnerships
Accounting for RDEC

Accounting for RDEC

You can make a claim up to two years after the end of the accounting period it relates to.

You can claim the credit by entering your expenditure into the full Company Tax Return form (CT600). However, as the claim is above the line, this credit will appear as other income in your accounts. This will have the benefit of improving the profitability of your business or business unit making a claim. 

Depending on if your company is profit or loss making, the credit may be used to discharge the liability or result in a cash payment. However, please be aware that for businesses paying in quarterly instalments, the RDEC scheme benefit falls outside of these calculations. 

The accounting and tax treatment of an RDEC claim can be complex and this is where having an R&D tax advisor who can cover both the tax and accounting policy implications is important.

How you will receive your RDEC tax credit

How you will receive your RDEC tax credit

Seven steps must be taken to determine how you will receive your claim:

  1. The credit discharges any corporation tax liability of the claimant company for the accounting period.
  2. This step restricts the potential payable element and ensures that loss makers receive the same net benefit as profit makers (the credit being taxable). This is achieved by retaining a ‘notional’ tax such that the total cash benefit for all claimants is equal to the expenditure credit, net of tax at the main rate of corporation tax. The ‘notional’ tax retained under this step is carried forward and available to reduce the corporation tax liability of a later period of that company
  3. This step further restricts any payable element to the company’s total expenditure on R&D workers’ PAYE and NIC for the accounting period.
  4. Any amount remaining after step 3 is used to discharge any outstanding corporation tax liabilities (due but not settled) of the company for any other accounting periods.
  5. If the company is a member of a group, it may surrender the whole or any part remaining after step 4 to any other group member. The company will need to fill in a template to record group relief paid to ensure HMRC can track these after PBT adjustments.
  6. Any amount remaining after step 5 is used to discharge any other liability of the company to pay a sum to the Commissioners, for example, VAT or liabilities under any contract settlement.
  7. The final amount remaining is payable to the company provided that the company is a going concern. If the company is not a going concern it is possible to offset PAYE or VAT liabilities before the entity is wound up. 

Most companies will either discharge their corporation tax liabilities in step 2 or obtain a cashback in step seven. However, HMRC has seen issues with discharging other liabilities or using the claim for group relief and this has brought about an extra form within the tax return (CT600L) to track these movements. Our team has followed the development of this form within HMRC and can advise companies on how to make an accurate and successful submission. 

How we work with you

How we work with you

Our team at Buzzacott has extensive experience with preparing and submitting RDEC claims. We can help you through the whole RDEC claim process or certain aspects of the claim, and if you’re an SME whether you qualify for the scheme for funded work. The claim submission process is complex for an RDEC claim and mistakes are made. We offer a free review of claims to check for errors and identify improvements to the submission documentations. 

Your claims will be prepared by our in‐house team of dedicated R&D tax specialists with a range of technical backgrounds. By training our staff, this allows us to maintain the quality and consistency of the claims produced, and to bring in specialists with the right skill sets to support our clients. All our specialists continue their training as they build their careers at Buzzacott. Our claims are part of our regulated services so you can be confident of the quality and standards of the work provided.

Get in touch

Get in touch

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below.

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