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, meaning it is taxable.
Large company classification
A company is generally classified as large if one or more of the criteria below are satisfied:
- Total staff of more than 500 people
- A 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. Only 65% of the total EPW costs can qualify for R&D relief
- 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
How are benefits calculated?
For large companies, the RDEC is a tax credit of 13% of the qualifying R&D expenditure.
| Qualifying R&D expenditure | = | £1,000,000 |
| RDEC | = | 13% x £1,000,000 |
| = | £130,000 | |
| The RDEC is treated as income, so it is taxable. | ||
| CT paid on RDEC | = | RDEC x CT Rate |
| = | £130,000 x 19% | |
| = | £24,700 | |
| Net benefit of RDEC | = | RDEC - RDEC CT liability |
| = | £130,000 - £24,700 | |
| = | £105,300 | |
| RDEC net benefit | = | 10.53% of initial qualifying R&D expenditure |