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Driving innovations forward through RDEC Scheme
Know your options, own your options
If you're a big company with big ideas, the RDEC scheme is like your secret weapon, helping you dismantle financial constraints and propel your innovations forward. By following the essential RDEC steps, you can unlock the full potential of this scheme and drive your projects ahead.
What is RDEC? A snapshot
The UK's Government introduced the Research and Development Expenditure Credit (RDEC) programme in 2002 to bolster R&D activities. This initiative is specifically designed for larger businesses and allows them to recover eligible costs linked to their research and development efforts. A successful claim can result in either obtaining a cash refund or reducing a portion of their corporate tax.
Qualifying criteria for RDEC
Size of the company
You must have a headcount
of more than 500 staff
Analysing profitability
Your company’s turnover is
equal to or above €100 million
Balance sheet or gross assets
Or your company has a balance sheet total
of €86 million or above
You need to be a limited liability company engaged in R&D activities, incurring expenses associated with these endeavours within the UK, and also fulfilling obligations of corporation tax.
What are the qualifying
activities for RDEC?
A crucial aspect lies in comprehending the activities or projects capable of involving businesses in the landscape of R&D endeavours, paving the way to capitalise from your RDEC claim effectively. If your technical team faces challenges in overcoming technical obstacles, finding solutions, or harbouring concerns about technical uncertainties, then you are likely to qualify for the R&D tax relief.
Analysing for an RDEC claim
Permitted purpose
You are aiming to enhance the performance, reliability, quality and functionality of a product or software
Technological uncertainty
You are unaware of the project's outcome, and there is a possibility that unforeseen results might occur during the development of a product or software
The process of experimentation
You are engaged in the process of undertaking a trial-and-error phase with the intention of overcoming technological uncertainties
Technological in nature
Your work falls within the domains of engineering, physical sciences, biological sciences, or computer science
What are R&D qualifying costs?
Staff PAYE costs/Pension contributions
Your company is eligible to request reimbursement for salaries, wages, class 1 NIC (National Insurance Contributions), and pension fund contributions paid to employees who are directly and actively involved in the R&D projects.
Materials and consumables
Your company is eligible to seek reimbursement for the expenses incurred on items that are directly used and consumed in qualifying R&D projects. These expenses cover materials, water, fuel, and power utilised in the R&D process.
Software purchases
The expenses related to operating systems, software platforms, and permissions granted for accessing and utilising digital data that is directly used in your R&D activities can be reimbursed. You may need to allocate the costs of partially used software appropriately to determine the eligible amount for the claim.
Travel costs
Certain travel expenses associated with your research and development may also be eligible for your claim. These costs include collaboration, attending relevant events, visiting research sites, or conducting fieldwork directly tied to your R&D projects.
Utilities
Utilities such as water, gas, and oil can also be claimed as part of eligible costs. However, it is important to note that only the portion of utilities used exclusively for R&D purposes will be eligible, not the entire utility bills.
How do I calculate my RDEC entitlement?
If you want to claim for an accounting period beginning on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate is set at 20%.
This means your business can recover up to 20p for every £1 invested in qualifying R&D activities. This is a fixed rate, whether your company is trading at a profit or a loss, because the credit is taxable and shown above the line in your profit and loss account.
This credit is taxable at your applicable corporation tax rate.
Example: If your company spends £500,000 on qualifying R&D, you’ll receive an RDEC above-the-line credit of £100,000. After Corporation Tax, the net benefit is typically around £75,000 (15%) if your tax rate is 25%.
Accounting treatment for
the RDEC scheme
You have the opportunity to secure credit by inputting your expenses in the comprehensive Company Tax Return form (CT600). Nevertheless, since this claim falls into a special category, the credit will be recorded as additional income within your financial records. This advantageous arrangement can enhance the overall profitability of your enterprise or specific business division that is making the claim.
Based on whether your company is generating profits or experiencing losses, this credit can either offset liabilities or lead to a cash disbursement. However, the RDEC scheme benefit does not factor into the calculations for businesses that make quarterly payments.
Navigating the accounting and taxation aspects of an RDEC claim can be tangled, and this underscores the significance of engaging R&D tax specialists who possess expertise in addressing both the tax and accounting policy ramifications.
How can I make an RDEC claim?
To receive your entitlement, you must complete 7 main steps when making an RDEC claim. These steps determine the outcome of your application and how you'll receive the rewards from your R&D efforts, whether it's in the form of credit carried forward or a direct cash payment to your bank.
The 7 steps of an RDEC claim
During this step, you will have to deduct any existing corporation tax obligations from the initial RDEC credit rate. If a credit surplus remains, it proceeds to the second step.
To ensure you receive your RDEC benefit in cash, you need to check if the balance after step 1 exceeds the net credit value. By net credit value, it means the gross credit minus Corporation Tax. If it is the case that the balance is more than the net value of the credit, then this balance should be retained so it can be used in future tax periods.
The R&D tax credits incentive is subject to a cap, known as the PAYE/NIC cap. The purpose of this cap is to prevent misuse of R&D tax relief, particularly considering that employee expenses commonly form a huge portion of a claim's expenditure. It ensures you’re only benefiting the staff members and EPWs who were directly involved in the R&D. This limit is determined by the PAYE and NIC submitted to HMRC for the employees covered by your RDEC application.
Before finalising the cash payment of the credit, HMRC might consider using it to offset any unpaid corporation tax from previous accounting periods rather than sending you a direct payment.
This is the time to choose whether to transfer the entire available credit amount to a group company, reducing their tax obligation for them. If you choose not to do this, you can still receive a cash payment if desired, regardless of the tax responsibilities of other group companies.
Upon reaching this point, any remaining sums will be collected by HMRC to cover outstanding taxes if there are any. These might encompass obligations such as VAT liabilities or overdue PAYE.
Mission accomplished! The cash credit is disbursed and prepared to be reinvested in your business endeavours, including advancing more R&D projects.
How can we help maximise
your RDEC Claim?
Our team of R&D tax credit specialists are deeply passionate about the transformations taking place that have been forged by research and development. Our streamlined RDEC claim process has resulted in good news for hundreds of businesses that have embarked on tackling industry challenges with technological advancement. We're good at what we do, and our high success rate with HMRC means we can help you get back all the money you deserve.
£Millions
Claimed back for our clients.
Reviews from our happy clients
2400+
R&D claims submitted across all sectors
£63,000
Average claim
"I would like to express my sincere thanks to Alexander Clifford for helping my clients with their software and web3 R&D tax credit claims. They provided invaluable support throughout the process, providing expertise and advice at every step. They were very responsive to our clients needs and able to help us understand the complex regulations associated with the tax incentives. We are extremely grateful for their help, and wouldn't have been able to complete clients projects without them. Highly recommended and looking forward to working with you again!"
CryptoCountancy Ltd
Frequently Asked Questions
The key distinction lies in accounting procedures. An SME R&D claim adjusts taxes through an enhanced deduction, impacting profits or losses without taxation. Conversely, an RDEC claim involves a percentage of qualifying costs treated as income, affecting profits and losses with taxation. RDEC is more complex than obtaining an R&D Tax Credit due to its multi-step process. While guidelines align, specific matters like grants and subcontractor rules vary between SME and RDEC claims.
Your eligibility for research and development (R&D) tax credits may vary based on shifts in your staff headcount, turnover, and gross assets. These factors determine whether you qualify for the SME R&D tax credit scheme or the research and development expenditure credit (RDEC) scheme.
After compiling and submitting the claim, it typically takes HMRC around 4-6 weeks to process it. However, during peak periods, this processing time might be longer. Following the processing period, payment is usually made within 14 days.
No, group companies would make their claims as separate limited companies. It's essential to take group relief into account when calculating the benefits of the claim. The SME status assessment should be done collectively for all the companies within the group. If one group company has already made an R&D claim, other group companies cannot apply for advanced assurance. Group relief is a significant factor in determining a payable RDEC.
Yes, both profit-making and loss-making companies can claim R&D tax relief under the RDEC scheme. For accounting periods beginning on or after 1 April 2023, the RDEC rate is 20% of qualifying R&D expenditure for all claimants. This credit is taxable and shown above the line in your profit and loss account. If your company is operating at a loss, the RDEC credit can still generate value for your business. The credit first offsets any corporation tax due, and any remaining amount can be paid to you in cash, subject to HMRC’s PAYE/NIC cap and other restrictions.
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