Knowledgebank: RDEC

Research and Development Expenditure Credit

Research and development expenditure credit (RDEC) and the Research and Development (R&D) tax relief are funds set up by the UK government, in a bid to provide support to small and large companies. These are crucial funds which if well utilised can help boost innovation projects conducted by a company which will, in turn, lead to greater discoveries and ultimately positively contribute to the economy. Read on to find out more about the two schemes.

Difference between RDEC and R&D tax credit schemes

Both RDEC and R&D tax relief are tax credit incentives from the government to companies involved in active research and innovation projects.

However, the two are separate when it comes to;

  • Benefit calculations
  • Eligible costs
  • Qualifications
  • Tax credit rates

Differences in eligibility for small and large companies

In the case of RDEC, eligibility requirements are less compared to those of R&D tax relief. Other differences include;

  • If an SME is working on research and development projects as a subcontractor to another company they cannot claim R&D tax relief whereas large companies in the same situation can claim for RDEC.
  • Companies that qualify under RDEC can claim even if they are already benefiting from a different grant or government-funded incentive. On the other hand, SMEs which fall under R&D tax relief are allowed to make their claims only if they have no other source of funding.
  • Variables in R&D tax relief and RDEC rates

A tax relief rate of 11% is available for qualifying companies to claim under RDEC while alternatively, qualifying companies under R&D tax relief can make claims of up to 33%. It may seem like a huge difference but once you factor in the amount of money presented by companies under both schemes, simple math will indicate that while smaller companies get a larger percentage, it evens out with larger companies also gaining significant benefits.

How credit is calculated for R&D tax relief and for RDEC

When making a claim under the RDEC scheme, companies receive benefits in one of two ways. The benefits are used to reduce the particular company’s corporation tax and if you do not have outstanding corporation tax then you can receive your benefit in form of cash payment. On the other hand, benefits gained by SMEs under R&D tax relief are used to reduce the company’s taxable profits.

If the SME made losses owing to their research and development projects then they can be surrendered in exchange for payment in cash.

To better understand RDEC or R&D tax relief schemes, or if you have any questions, contact us using the form below and we can assist.

We have an able team of experienced tax experts ready to give attention to your claim.