Key features of new RDEC

Unlock the power of UK R&D tax incentives!

R&D Insights provides weekly bite sized insights into claiming UK R&D incentives. Each edition highlights an aspect of the guidance that it's useful to be aware of, with links to the relevant online HMRC information, so that you can explore the topic in more depth if you wish.

Did you pick up that in mid-January 2025, HMRC finally published guidance and rules for the new merged R&D scheme? It has been dubbed 'new RDEC' (RDEC stands for Research & Development Expenditure Credit).

This replaces the old RDEC and old SME schemes. It’s vital to understand what the changes mean for your business as this will be crucial to maximising your R&D claims.

In this first newsletter we outline the key features of new RDEC, which applies to all companies claiming UK R&D incentives for periods of account starting on or after 1st April 2024.

Watch the video version here.

New RDEC offers a taxable credit that is deemed to be income. The deemed income is currently calculated at 20% of qualifying R&D expenditure in the relevant accounting period. The net of tax value can be used to offset corporation tax or in some cases taken as a payable tax credit. The benefit of an RDEC claim is therefore worth around 15% of your qualifying R&D expenditure.

For small profit makers and loss makers, the notional tax applied is at the more favourable small profits rate. As before, there is a cap on the amount of any payable tax credit, which is applicable for loss making companies. The cap is set at the same level as the old SME cap, which is ￡20,000 + 3 x all payroll taxes paid in the year. So, companies with few salaried employees are more likely to be hit by a cap.

Other significant changes include:

1. Strict limitations have been introduced on claiming new RDEC for expenditure on contractors or externally provided workers undertaking R&D activities overseas.
2. Significant changes regarding which company can claim the costs of contracted out R&D (previously referred to as sub-contracted R&D) when R&D is undertaken by a contractor as part of contract delivery for a client.

Both of these will be covered in future insights.

Here is a link to the new RDEC manual with more details.

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