Understanding R&D Expenditure Credit (RDEC)
Research and development tax credits have provided companies large and small with invaluable financial support since being introduced back in the early 2000s. By rewarding investment in R&D activities for UK companies, keeping British business at the forefront of technological and scientific innovation has been essential for the economy.
Small businesses – i.e. those employing fewer than 500 members of staff, and with a turnover of less than €100m or a balance sheet total under €86m – can claim under the regular scheme, but what about larger companies?
Previously, those operating above the thresholds identified for small business could claim under the imaginatively titled Large Company scheme. However, since April 2016, this particular scheme has been replaced by the R&D Expenditure Credit (RDEC) initiative to provide Corporation Tax relief on the applicable research and development work conducted.
What constitutes R&D work?
Often, companies engaging in R&D work are unaware that they can even claim these tax credits. That’s large because awareness of the scheme has been slight for many years, or even because of a misunderstanding of what constitutes R&D work. After all, it can be easy for even the biggest companies to fall foul of believing that it takes men in white coats and a laboratory to engage in proper R&D.
Of course, the reality is that your work should simply be looking for an advance in science and technology; seeking to overcome uncertainty; and that the uncertainty could not easily be worked out by a professional in the field. As such, large organisations in almost any sector – from software development to construction – can benefit from the RDEC scheme.
What can be claimed?
The tax credit – which equates to 11% of your company’s qualifying expenditure –enables you to claim on costs incurred from the date work started on the project until it is completed or stopped. The applicable costs you can claim include salaries and wages, Class 1 NICs payments, and pension fund contributions for your staff. What’s more, you can also claim for selected subcontractor costs and consumable items such as materials and utilities that form part of the project expenditure.
Support your claim
When it comes to claiming the RDEC scheme, it pays to work alongside an experienced R&D tax specialist to ensure your application stands the best chance of success. After all, the complexities of making a claim are such that many businesses may even choose to forgo the process entirely and miss out on their due rewards.
Supporting your claim with the right information is therefore fundamental. Ensure that you maintain accurate records of all R&D work undertaken and detail in full how our project fulfils the requirements necessary to be considered eligible for a claim.