Research and development expenditure credit (RDEC)

Produced by Tolley
Research and development expenditure credit (RDEC)

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Research and development expenditure credit (RDEC)
  • RDEC ― large company R&D relief
  • Interaction with SME R&D reliefs
  • Utilisation and payment of RDEC
  • Restrictions
  • Ineligible companies
  • Amounts deducted by way of tax adjustment
  • Surrender of credit to other group companies

RDEC ― large company R&D relief

Since 1 April 2016, or from 1 April 2013 by election, large company R&D relief is given through research and development expenditure credits (RDEC), which is a taxable credit payable to the company. As the credit is taxable, it is also sometimes called an above the line credit.

RDEC is calculated by applying a specified percentage to the company’s qualifying expenditure. For expenditure incurred on or after 1 April 2020, the percentage is 13%. The historic RDEC rates are as follows:

  1. 12% for expenditure incurred between 1 January 2018 and 31 March 2020

  2. 11% for expenditure incurred between 1 April 2015 and 31 December 2017

  3. 10% for expenditure incurred between 1 April 2013 and 31 March 2015

There is an exception for companies carrying on a ring-fence trade to whom a percentage of 49% applies.

To accommodate the changes in the rate of the RDEC, qualifying R&D expenditure incurred in accounting periods that straddle a rate change will need to be separated according to the date it was incurred and the appropriate rate applied. The RDEC is worth up to 10.53% of qualifying expenditure after 1 April 2020, (9.72% of qualifying R&D expenditure from 1 January 2018 and 8.91% prior to 1 January 2018) to a large company subject to the 19% corporation tax rate.

See Example 1.

For the definition of a large company, see the Research and development (R&D) expenditure ― overview guidance note.

For details of the qualifying conditions and expenditure, see the Qualifying expenditure for R&D tax relief guidance note.

The RDEC regime is available to companies carrying on a trade and the company must also carry out qualifying R&D act

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