RDEC (Research and Development Expenditure Credit)

RDEC (Research and Development Expenditure Credit)

Background

To replace the large company super deduction scheme, RDEC (Research and Development Expenditure Credit) was introduced in 2013 to continue to encourage large companies to invest in the undertaking of R&D in the UK.
Unlike the previous super deduction regime, RDEC is an above that line credit that increases, rather than decreases, the companies taxable income.
In an age of increasing political pressure for corporations to pay more tax, this was a welcome change by many large companies.

History

The original R&D Tax Credits large company regime was launched in 2002 but caused problems with a number of companies owing to it being a tax reduction regime (particularly US-based companies and those who have a sensitivity about the magnitude of their tax bill). Since its launch in 2013, RDEC has grown in popularity with the 2017 HMRC statistics now reporting that £18.3bn of RDEC relief was claimed within the 2015-2016 financial period.

Potential RDEC Claimants

RDEC was primarily intended for large companies that are undertaking qualifying activities projects in Science and Technology that are revenue in nature for tax purposes. However, in addition to this, SMEs that are undertaking R&D that has been subsidised or funded by a large company will also claim under the RDEC regime.

Accounting for RDEC

Main Article: Accounting for R&D Tax Credits.
RDEC is a standalone credit of 12% paid above the line. Prior to April 2018, the rate of RDEC was 11% (prior periods are less relevant as companies can only go back two claim periods). RDEC is accounted as a receipt in calculating profits.

Where the Company Yearend Spans Two Financial Years

Should your yearend spanning two financial years, it may be the case that you will need to apply two rates of corporation tax and/or two rates of RDEC. If this applies, then the appropriate rate should be apportioned on a daily basis over the two fiscal periods.

Typical Timeline for Payment

HMRC do not officially specify a timeline for the RDEC payment and typically refer each claimant to their Customer Relationship Manager (CRM) for individual queries.
From our experience we normally expect claims to take a couple of months, but in exceptional circumstances payment can take much longer than this

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