R&D Expenditure CreditRDEC Scheme

The RDEC (Research and Development Expenditure Credit) scheme is a UK government tax incentive designed to encourage large companies and certain SMEs to invest in research and development activities.

What is the RDEC scheme?

Large companies are those with a staff headcount (either individually or within a Group) of 500+, or Turnover over €100m and Balance sheet assets over €86m. If an SME has been subcontracted by a large company for an R&D project or received subsidies such as grant funding, then it would also have to claim under the RDEC scheme, rather than SME.

The RDEC scheme allows eligible companies to claim a tax credit worth up to 20% of their qualifying R&D expenditure and a net tax saving of 15% (since 1 April 2023). Please note for periods up to 31 March 2023, the previous rate of 13% (net 10.7%) will still apply.

R&D Tax Reliefs are changing

From 1 April 2024 the new merged RDEC scheme replaced the SME scheme. This applies for accounting periods beginning on or after 1 April 2024 and will adopt the existing RDEC rate of 20%. For loss-making entities and those with profits <£50k, the notional tax rate of 19% is applied, rather than the main rate of 25%. This means for most profit making companies the net tax saving is 15% of R&D expenditure (£15k for every £100k spent on R&D) and for loss makers it is 16.2% (or £16.2k for every £100k spent).

There is also a scheme for loss making only R&D intensive SME’s where their qualifying R&D expenditure accounts for 30% or more of total company expenditure. The R&D intensive scheme also applies to periods since 1 April 2023 to 31 March 2024 where the threshold was R&D expenditure of 40% or more of total company expenditure.  This scheme is similar to the SME scheme where R&D expenditure is enhanced by 86% (from 1 April 2023, 130% prior to that) and losses can be cashed in at 14.5%.

It’s really important you are aware of these new R&D schemes and depending on what accounting period you have, at which point you need to start making claims under the merged RDEC scheme or if the R&D intensive scheme might apply to you.

For further information about these changes and others, including changes to the rules on contracted R&D and overseas R&D costs, read our full Autumn Statement summary.

What projects are eligible for the RDEC scheme?

To qualify for the RDEC scheme, a project must meet HMRC’s strict criteria. However, while the criteria are specific, many eligible companies do not realise they qualify.

The project must be seeking to achieve an advance in science or technology, through the resolution of scientific or technological uncertainties. It must also relate to the company’s trade. The R&D activities must be carried out by the company itself. Unlike the SME scheme, you cannot subcontract out R&D activity unless it is to an individual, Partnership or qualifying body, such as a University or Scientific Research Organisation.

It is important to note that each project will be considered on its own merits, and not all projects will qualify. This is why we believe it is essential to consult an RDEC specialist to verify your eligibility.

You can also check your eligibility in the free Radius R&D Tax Relief Eligibility Checklist.

How is RDEC different to the SME scheme?

Primarily the schemes are similar in terms of the eligibility of what projects qualify as R&D for tax purposes. The main difference is in the eligible costs and exclusion of subcontracted R&D costs in the RDEC scheme, bar for certain circumstances already mentioned earlier.

The SME (Small or Medium-sized Enterprise) scheme is also more generous with an effective Corporation Tax saving of 21.5% (or 24.75% for periods up to 31 March 2023).

It is important to understand the differences between them, and which is the correct scheme for your business.

  • SME – For all companies that qualify as an SME, undertaking their own R&D projects.
  • RDEC – Large businesses or SMEs who have been subcontracted to perform an R&D project by a Large business or have received subsidies such as a Grant.

R&D Tax Reliefs done properly – Speak to Radius today

The Radius team at Shorts are full-time specialists in R&D Tax Reliefs, and this includes extensive work for clients within the RDEC scheme.

We do R&D Tax Reliefs properly. That means ensuring we consider all the possible ways we can maximise your RDEC claim within the scope of the legislation. It means we use detailed quality assurance processes to ensure claims are fully optimised and compliant. It also means we make preparing your company’s claim as easy as possible for you.

Robust claims, prepared and maximised by specialists with minimum disruption to you.

 

Real client examples

Download our practical and industry specific guide to R&D Tax Relief claims. The aim of this guide is to give real life examples of successful claims to demonstrate the type of activity which qualifies.

 

Download Case Study Guide

Check your Eligibility today

Our team has developed a free, interactive checklist to help you determine if your company or project is eligible for R&D Tax Reliefs. Try it today, or contact our team for a direct response to your query.

 

Check Eligibility Today