Key Features of New RDEC

New RDEC offers UK businesses a taxable credit

The taxible credit is deemed to be income and can be used to offset corporation tax, or in some cases, taken as a payable tax credit (cash payout). 

Claims are made through the UK corporation tax return submission although some additional information is required to be submitted online before the R&D claim is filed as part of a company's corporation tax return, or an amended tax return. 

The deemed income is based on a percentage of qualifying R&D expenditure. The current percentage is 20%. For example, if your qualifying R&D expenditure is £100,000, the deemed income will be 20% of £100,000 which is £20,000. At the current standard UK corporation tax rate of 25%, this gives a net deemed income, after corporation tax is deducted, of £15,000 (15% of your qualifying expenditure). 

The RDEC, net of tax, deemed income can be used to offset any corporation tax your company is due to pay, or in some cases, for loss-making companies, paid out as a payable tax credit (cash payment).

For small profit-makers and loss-makers the notional tax applied is at the more favourable 19% small profits corporation tax rate, which gives a slightly higher benefit.

As before there is a cap on the amount of a payable tax credit that can be paid out as cash, in each accounting period. Under new RDEC, it is set at the same level as the old SME R&D tax credit cap, which is £20,000 plus 3 x payroll taxes paid in the period. Any amount which exceeds the cap is carried forward and treated as an expenditure credit for the next accounting period.  

Significant changes to Contracted Out rules replace the old Subcontractor rules, governing which party can make an R&D claim, when R&D activities are undertaken as part of contract delivery. 

New strict limitations apply for claiming R&D expenditure on contractors or staff based overseas.

Here is a link to HMRC's new RDEC manual with all the details.

Visit Claiming RDEC Index Page.