HMRC’s RDEC Scheme Explained
Published 5 May 2021
You may have heard about the RDEC scheme, which the government introduced in April 2013. So, what is it, why was it launched, and how can it help businesses? In our latest blog, we’re delving into the details of the RDEC scheme to give you all of the information you need to know.
What does RDEC stand for?
While it’s commonly referred to as the RDEC scheme, RDEC stands for research and development expenditure credit.
What is the RDEC scheme?
Introduced in 2013, the RDEC scheme is a tax incentive offered by the government to reward large businesses that invest in innovation.
It came into play as part of the Finance Act in April 2013, with the most recent rate increase to 13% appearing in the 2017 Autumn Budget.
Through the scheme, businesses can claim research and development expenditure credit to enjoy corporation tax relief on any R&D costs they incur.
While it’s predominantly aimed at larger businesses, SMEs can claim RDEC if they’re undertaking research and development work for bigger firms or they’ve won a grant for research and development work.
Why did the government introduce the RDEC scheme?
The government launched the RDEC scheme as part of a strategy to boost the UK economy by investing in innovation.
With ambitious targets to increase investment in R&D to 2.4% of GDP by 2027, the RDEC scheme gives large businesses an attractive incentive to fund innovation by making research and development more affordable.
How is RDEC calculated?
Research and development expenditure credit is calculated at 13% of a business’s qualifying research and development expenditure.
To qualify for RDEC, expenditure must have been incurred on or after 1 April 2020.
What kind of projects qualify for RDEC?
To secure RDEC, your R&D work must form part of a project involving advances in science or technology. It should be associated with your current line of business or be part of a new side of the business you’ll establish as the result of your findings.
Projects can involve researching or developing new products, processes, and services. Or, they can focus on how to improve existing products, processes, and services.
As part of the qualifying process to claim RDEC, you must demonstrate how your project:
- Seeks to make advances in science and technology in your chosen field, not just in your business
- Has overcome – or tried to overcome – scientific or technological uncertainty. For example, have experts previously expressed doubt whether this advance is possible? You can’t already know how it will be achieved – your research and development must reveal this, and you’ll need to show how you did this
- Couldn’t be easily worked out by a specialist – have there been unsuccessful attempts in the past? What will make your project succeed where others failed?
How can the RDEC scheme help businesses?
Through the RDEC scheme, you can claim relief on costs such as salaries, National Insurance contributions and pension contributions.
Crucially, staffing costs must relate directly to the project itself and can’t be general costs that you’d have paid out anyway.
You can also claim relief on subcontractor costs and consumables, such as materials and utilities.
You can’t make RDEC claims for costs like production, distribution, capital expenditure, land, patents, trademarks, rent or rates.
How can I claim RDEC?
To claim RDEC, you must enter your relevant expenditure into your full company tax return form.
How can I find out more about RDEC?
You can find more information about what R&D tax credits are and how they work here.
If you need support making a claim, or you need advice on your eligibility, contact us using the details found here.
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