R&D Expenditure Credit (RDEC)

For a large company relief is given as an ‘above the line’ expenditure credit that is calculated as a percentage of the qualifying expenditure for the relevant accounting period. The R&D expenditure credit (RDEC) is treated as income, meaning it is taxable.

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Large company classification

A company is generally classified as large if one or more of the criteria below are satisfied:

  • Total staff of more than 500 people;
  • A turnover of greater than €100m OR balance sheet assets greater than €86m.

What costs qualify for R&D relief?

  • Staffing costs, including gross salaries, wages, overtime pay and cash bonuses; employer NI contributions; and employer pension contributions.
  • Costs of externally provided workers (EPWs), which are the staff costs paid to an external agency for staff who are directly and actively engaged in the R&D project. EPWs must carry out R&D activities under the supervision, direction, or control of the claiming company. Only 65% of the total EPW costs can qualify for R&D relief.
  • Consumables, which are materials that are consumed or transformed in the R&D process. These include utilities such as water, fuel, and power.
  • Software, including the cost of software licences utilised in the R&D activities.

How are benefits calculated?

For large companies, the RDEC is a tax credit of 13% of the qualifying R&D expenditure.

Qualifying R&D expenditure = £1,000,000
RDEC = 13% x £1,000,000
  = £130,000
The RDEC is treated as income, so it is taxable.  
CT paid on RDEC = RDEC x CT Rate
  = £130,000 x 19%
  = £24,700
Net benefit of RDEC  = RDEC Credit - RDEC CT liability
  = £130,000 - £24,700 
  = £105,300
RDEC net benefit = 10.53% of initial qualifying R&D expenditure

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Justin Arnesen

Partner, R&D Tax and Government Grants, Business Tax

Business tax
London

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