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