R&D Tax Relief for Large Companies in the UK

Large companies, unlike SMEs (Small and Medium Sized Enterprise), cannot claim additional expenses but can request HMRC (HM Revenue and Customs) to pay them a certain percentage of R&D expense (or offset with corporation tax liability). These companies have over 500 employees and either a turnover exceeding €100 million or gross assets exceeding €86 million.

Relief must be claimed and provided as a credit for R&D expenditures. Claims must be included in the business’s tax return or an amendment to the return. Claims must be submitted within two years of the close of the applicable accounting period.

Research and Development Expenditure Credit (RDEC)

The tax credit for large companies is the Research and Development Expenditure Credit (RDEC). This scheme was introduced in April 2013 to encourage businesses to invest in technological and scientific advancements.

The RDEC is considered taxable income when calculating the trade’s profits for the accounting period. The exact amount will also be credited against the company’s tax liability.

Did you know that more than ten thousand businesses made over ￡2.4 billion RDEC claim in 2021?

To facilitate a more effective review of information by HMRC and simplify the risk assessment process, all RDEC claims must be submitted online.

Companies making their first RDEC claim or have not submitted any claims in the previous three accounting periods must provide advance notification of their claim to HMRC online.

What is the R&D tax credit rate for the RDEC scheme?

The RDEC scheme provides a 20% tax credit (this rate applies to expenditures incurred on or after 1 April 2023) on Corporations. Unlike the scheme for small and medium-sized enterprises (SMEs), this rate remains constant, regardless of whether your company is making a profit or incurring losses.

What Costs Qualifies for RDEC?

Qualifying costs for RDEC include:

• Employee costs include salaries, bonuses, wages, Secondary Class 1 National Insurance Contribution and pension contributions, and reimbursed business expenses.
• Consumable items, including fuel, water, power, and material
• Software (used by R&D team)
• Data license and cloud computing (included from April 2023 on eligible costs)

- Cloud computing includes data storage, hardware facilities, operating systems, and software platforms.

• Subcontracted R&D costs if directly undertaken by:

- a qualifying body (charity, higher education institute, scientific research organization, health service body, etc.)

- an individual or firm where each member is an individual

Can Small and medium-sized enterprises (SMEs) Claim RDEC?

Some Small and medium-sized enterprises (SMEs) can apply for RDEC under certain circumstances like they have been subcontracted to conduct R&D work for a large company or have received financial support through a grant or subsidy for their R&D project. Many SMEs are unaware of this distinction, leading to incorrect claims or missed opportunities for significant extra advantages.

Conclusion

In the dynamic landscape of R&D tax relief for large companies in the UK, the Research and Development Expenditure Credit (RDEC) scheme stands as a valuable incentive. With a fixed 20% tax credit, it champions technological progress, irrespective of profit or loss. Do not miss the opportunity to harness this credit.

To ensure the validity of your claim, it is crucial that you adhere to the rules and regulations established by HMRC. Claiming your R&D tax credit and reaping its benefits requires careful attention to detail and the right approach. It is recommended to consult with experts in the R&D Tax Credit field for hassle-free and accurate claims.