The R&D Tax Credits RDEC Scheme
R&D tax credits can give businesses a much-needed financial boost. However, understanding the RDEC scheme can be confusing for larger businesses. We’ve broken down the main facts for you to digest.
What is the RDEC Scheme?
The Research and Development Expenditure Credit (RDEC) scheme replaced the large company scheme in April 2016 and applies to those businesses that fall into the HMRC’s definition of a large company. The primary difference of the new large company scheme is that large companies who are operating at a loss may now claim a cash benefit.
How Does RDEC Work?
The RDEC Scheme operates above the line, and therefore affects the expense calculations for specific departments that perform research and development. A credit amount of 11% of the company’s qualifying expenditure encourages large companies to spend more on R&D, thus helping a range of industries to grow. Qualifying expenses through R&D work include staff wages, external worker costs, materials, consumables and software. Some costs can’t be claimed for such as certain subcontractor activities and most capital expenditure. Applications must be made within two years of the company’s year end.
Knowing the Difference Between SME and RDEC Schemes
The RDEC and SME schemes are slightly different, and depend on the size and turnover of a business. The SME scheme – applicable to companies with fewer than 500 employees and an annual turnover of less than €100 million or a balance sheet of under €86 million– is well known for being more lucrative.SMEs can also claim RDEC on expenditure which doesn’t fall into the SME category, e.g. projects already receiving grant funding.
Once a business exceeds the above limits, however, it automatically becomes part of the RDEC scheme, and must claim as such. When part of the scheme, it’s important for companies to track the details of their RDEC entries carefully each year. This can be complex, so it’s advisable for growing firms that are transferring to the scheme to engage in regular dialogue with HMRC or seek assistance from an R&D tax specialist.
Getting RDEC HMRC Advice & SME Scheme Support
Here at R&D Tax Solutions based in Manchester, we specialise in helping companies make successful R&D claims, whether through the SME or RDEC scheme. Our team of R&D Tax Claim experts have built up strong relationships with HMRC, so we understand what they’re looking for and the differences between each scheme. Our specialists work flexibly alongside any other accountancy support you receive, and we have expertise covering a broad range of industries including land remediation, manufacturing and engineering. Whatever your industry, we can help.