The Research and Development Enhanced Credit (RDEC) scheme is one of two forms of research and development (R&D) tax relief offered to businesses in the UK.
Where the SME scheme provides tax relief to smaller businesses, the RDEC is for larger businesses and corporations that undertake R&D work. At Cooden Tax Consulting, we have extensive experience providing businesses with help with their R&D tax relief claims. We can help you to ensure that you get the tax credits that you are owed.
If you are interested in speaking to a member of our highly knowledgeable team, please get in contact with us today. Read on for more details on the RDEC R&D tax credit scheme.
What Costs Qualify for R&D Tax Relief?
Through the RDEC scheme, companies can claim a tax credit of 13%, after the increase in April 2020. This means that for every £1 that a company spends on qualifying R&D activity, it can claim back up to 11p (after Corporation Tax deduction).
If you have never claimed R&D tax credit before, this can be hugely important for your business, ultimately affecting your bottom line and enhancing future R&D work. There is evidence to suggest that many businesses that qualify for R&D tax relief are not currently claiming it, and are therefore missing out on money.
What makes a business qualify for the RDEC scheme?
To qualify for the RDEC tax relief, your businesses needs to be carrying out R&D work. This is defined as carrying out a specific project that looks for an advance in either science or technology.
The government sets out specific rules regarding what qualifies as R&D work, and these include stipulations that the work must find an uncertainty, attempt to overcome that uncertainty, and that this work couldn’t be easily carried out by someone in the field. It is on these projects that you can claim R&D tax relief.
It is also important to note that there are actually two separate R&D tax relief schemes – the RDEC and the SME scheme.
What is the difference between the RDEC and SME schemes?
In simple terms, the SME scheme is for smaller businesses and the RDEC is for larger businesses. In practice, qualifying companies for the RDEC scheme are considered to have more than 500 members of staff, as well as either more than €100m turnover or €86m gross assets.
An important distinction between the two is that unlike in the scheme for SMEs, the 13% rate remains the same, whether your business is making a profit or a loss.
It should also be noted that in some cases, SMEs can claim tax relief through the RDEC scheme due to restrictions around some grant-related projects in the SME scheme.
What counts as eligible expenditure in R&D tax credit claims?
It is important to understand exactly what counts as eligible expenditure on R&D tax relief claims. Some of the most important forms of expenditure that you can claim for include:
- Wages of employees
- Wages of sub-contractors
- Externally-provided workers
- Consumed or transformed materials (such as chemicals or fuels)
How to calculate RDEC
In theory calculation your RDEC tax relief is simple – but some of the most complex aspects of the process are in understanding exactly what you can claim for, and ensuring that you are maximising the potential of your claim.
To calculate your qualifying expenditure:
- Establish the costs that you can directly attributable to R&D (see above
- Reduce to 65% of the original cost of subcontractor or external staff
- provider payments where relevant
- Add your costs together
- Multiply the figure by 13% to get the expenditure credit
- Put this figure into your tax return
If your relevant R&D spending is £100,000, you will receive an estimated tax refund of £10,530. This figure comes from 13% of the £100,000 (£13,000) minus the 19% corporation tax rate.
35K Saved from R&D Tax Relief
“We saved £35k for activities we had not realised were eligible for R&D tax relief. Simon is very knowledgeable in preparing and filing claims that provide everything the authorities need. He emphasises the important things to score on their assessments and concisely argues the point!”
Contact Us Today
If you would like to learn more about the RDEC R&D tax relief scheme, the team at Cooden Tax Consulting would be happy to help. We have extensive experience helping businesses get as much out of their tax relief claims as possible – we can do the same for you. You can call us on 01424 225345 or email us at firstname.lastname@example.org for more information.