The Research and Development Expenditure Credit (RDEC) was introduced by the Finance Act 2013. This legislation led to a change in how large companies and SME’s with funded projects claim R&D tax relief.
Previously the large company R&D regime only brought benefit to companies making a profit. RDEC has been structured to appear ‘above the line’. This means it is identified in the company’s accounts and can now enable a credit to be recognised. RDEC enables both loss making and profitable companies to equally benefit from the credit available.
The Mechanics
The RDEC calculation has several steps, the table below outlines an overview of the mechanics for the CT computation.
| Assuming £100,000 of R&D expenditure | No Claim £ | RDEC Claim £ |
| Turnover | 1,000,000 | 1,000,000 |
| R&D Expenditure | (100,000) | (100,000) |
| Other Expenditure | (500,000) | (500,000) |
| Profit/(Loss) Before Tax | 400,000 | 400,000 |
| Tax Charge @19% | 76,000 | 76,000 |
| RDEC @12% | 12,000 | |
| Profit/(Loss) Before Tax | 412,000 | |
| Tax Charge @19% | 78,280 | |
| RDEC Credit | (12,000) | |
| CT Payable | 66,280 | |
| Net Saved | 9,720 | |
| Net Benefit % | 9.72% |
For taxpaying companies, the RDEC benefit reduces the company’s corporation tax liability. For loss making companies RDEC creates a credit payable immediately.
The cash RDEC credit value is subject to several steps, one criteria being it is capped based on the PAYE and NI paid to HMRC for staff members included in the RDEC calculation.
