06 Nov Research and development expenditure credits (RDEC)
Research and Development expenditure credits define the future of any country. A major government policy was introduced in this regard to promote R&D in the UK. Under the policy, multinational and other corporate agencies are encouraged to work aggressively on research and development.
If you own an entity and if you’re busy carrying out research work, the government will not only motivate and give you by giving you relief packages, but they’ll also work on tax benefits. More businessmen and investors are encouraged to invest in the UK.
Primarily, RDEC (research and development expenditure credit) is used by big corporations and companies, but small and medium enterprises are also using the tax incentive policy.
What’s the main idea of Research and development expenditure credits?
UK passed the legislation in order to incentivize the R&D sector. They slashed the claim value from the tax line and moved it into the statutory accounts. So, what’s the benefit of this change? This change, made through legislation, actually put the spotlight on the R&D relief. It basically highlights it more and it is now visible to all key stakeholders and companies.
Can you benefit from Research and development expenditure credits?
If you’re an entrepreneur and interested in conducting research, then this scheme is for you. But, don’t sweat, because there’s a separate scheme if you are an SME. You can benefit from an SME R&D tax credit scheme. It is actually more generous and offers more tax credit rates.
The main features of the scheme
The RDCE tax credit is 13% for all qualifying R&D expenditures. The credit will be taxable at the usual Corporation Tax, which is 19%. This means that your benefit will be 11% for every £1 you spend on R&D, but you have to qualify. The benefit will be visible above the line.
What are the benefits?
RDEC will be highlighted in your income statement. This will impact profits in your accounts. The profits have a stark effect on your R&D investment decisions.
The benefits from RDEC are by far positive. It is independent of your company’s tax standing. Also, you will be able to forecast the benefits easily. This enables companies and other large corporations to account relief into their investment decisions with better stability.
Another attractive feature of the incentive is that it is irrespective of profit and loss-making entity. The scheme can be used by loss-making companies equally.
RDEC for smaller companies
SMEs are the heart of any growing economy because they pave the way towards financial stability. For RCED, you must follow some qualifying criteria. you have to go with SME tax credits for better relief and claims.
What if you want to claim SME tax credits instead of RCED?
You probably want to fulfil a few benchmarks for this. Make sure that you have less than 500 employees working for you. Other criteria are related to your company’s scale. Your company’s turnover and assets should not be more than 100 million and 86 million respectively.
Now if you are thinking that your company is an SME, but at the same time you are working with some large scale company then you might want to stay away from SME tax credits. To look into the details, if you are partnering with another company that involves more than 25% voting rights or capital, it will make the sum of your size above the qualifying threshold.
If you are working as a subcontractor for another big company, the scheme will not be applicable. You cannot claim any relief in that case.
How can you claim RCED?
The most important part is the claiming step. You can claim tax credits for up to two years after the end of the accounting period. This is important as you seek advice from an accountant to evaluate your eligibility or choose between SME tax credits or RCED.
You can claim by filing your corporation tax. You can also make amendments in corporation tax to file for it. The delay risk can be minimized by submitting an explanation or by applying Advance Assurance. HMRC will confirm your claims and costs and may ask you questions about it.