R&D expenditure credit (RDEC) explained

For a large company relief is given as an ‘above the line’ expenditure credit that is calculated as a percentage of the qualifying expenditure for the relevant accounting period. The R&D expenditure credit (RDEC) is treated as income, positively impacting EBITDA and increasing a company’s taxable profits. RDEC is claimable by large companies, or SMEs undertaking subsidised R&D and projects contracted to them by large companies.

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Large company classification

A company is generally classified as large if one or more of the criteria below are satisfied (at a group level):

  • Total staff of more than 500 people
  • Turnover of greater than €100 million or balance sheet assets greater than €86 million

What costs qualify for R&D relief?

  • Staffing costs (including gross salaries, wages, overtime pay, and cash bonuses), employer national insurance contributions, and employer pension contributions
  • Costs of externally provided workers (EPWs), which are the staff costs paid to an external agency for staff who are directly and actively engaged in the R&D project. EPWs must carry out R&D activities under the supervision, direction, or control of the claiming company and the work should not constitute the contracting out of R&D activities. Only 65% of the total EPW costs can qualify for R&D relief, assuming the staff provider is unconnected.
  • Consumables, which are materials that are consumed or transformed in the R&D process. These include utilities such as water, fuel, and power
  • Software, including the cost of software licences utilised in the R&D activities
  • For accounting periods beginning on or after 1 April 2023, data licences and cloud computing utilised in the R&D activities

How are benefits calculated?

From 1 April 2023 the RDEC rate and corporation tax rates are changing and therefore the net benefit receivable by companies will change.



Corporation Tax Rate

Before 1 April 2023



After 1 April 2023


19% - 25%

From 1 April 2023 companies with profits lower than £250,000 can claim Marginal Relief which will result in a marginal rate of tax between 19% and 25%.

Worked example

Before 1 April 2023

After 1 April 2023 (companies with projects greater than £250,000)

Qualifying R&D expenditure







13% x £1,000,000


20% x £1,000,000


The RDEC is treated as income and is therefore taxable.

CT paid on RDEC




RDEC x CT Rate

£130,000 x 19%


RDEC x CT Rate

200,000 x 25%


Net benefit of RDEC




RDEC - RDEC CT liability

£130,000 - £24,700


RDEC – RDEC CT liability

200,000 - £50,000


RDEC net benefit


10.53% of initial qualifying R&D expenditure

15% of initial qualifying R&D expenditure