Guest blog: Tell me about RDEC

Wednesday, 25th July 2018

Guest blog by Ian Wolfendale, Jumpstart UK

With the Chancellor’s Autumn Statement increasing the rate of the R&D Expenditure Credit (RDEC) from 11% to 12% from 1st January 2018, there has never been a better time for Large Companies to benefit from R&D tax relief.

Tell me about RDEC

The RDEC Scheme is for large companies over 500 FTE staff, or with revenue greater than €100m and balance sheet assets greater than €86m.

In the past loss-making Large Companies (and SMEs claiming under the large company scheme) had a pretty rough deal with R&D tax relief. They watched SMEs surrendering their losses for a nice cash credit to help them increase cash flow and fund innovation, whilst they had to settle for rolling their enhanced deduction forward each year until they had some profits to offset the deduction against. Whilst in the long term this provides a worthy benefit, in the short term it was hard for many loss making large companies to see where R&D tax relief scheme could help them when they needed it.

But it’s ok! 

That’s why in 2013, in a bid to improve the R&D tax relief scheme for large companies, HMRC introduced R&D Expenditure Credit (RDEC), an above the line credit that allows loss making large companies to receive a cash credit.

An above the what now? 

Unlike the old Large Company R&D tax relief scheme, in which R&D expenditure was enhanced by 130% and deducted from the company’s profits, RDEC is paid out as a credit, calculated directly as 11% of the company’s R&D spend. This means that the cash credit is recorded in the accounts as a reduction in the cost of R&D, which is above the tax line. This grant is taxed at the company’s corporation tax rate.

WHAT? It’s taxed?

Yes, it is. But in actual fact many companies find that they still receive a great benefit by claiming through the RDEC scheme as these examples show.

  A profitable company A loss making company
Profit £200k -£200k
Eligible expenditure £400k £400
Gross Tax credit £40k £40k
Enhanced deduction n/a n/a
Profit after RDEC £240k -£160k
Tax payable £46k Nil
RDEC deduction against tax at 19% CT £40k £0
Tax Payable (after RDEC) £6k -£32.4k
Total Benefit £32k £32.4k

OK, I’m interested….tell me more.

From 1 April 2016 the old Large Companies R&D tax relief scheme was scrapped and RDEC is the only scheme available large companies to claim R&D tax relief.

The key is to identify as much eligible expenditure as you can the more you identify, the greater the value of the relief you’ll receive from HMRC. So the ideal partnership to deliver the best results for any client is the combination of a specialist technical R&D tax relief advisory firm such as Jumpstart, who speaks both your language and HMRC’s; and your accountant. In collaboration they can manage the assessment, preparation and submission on your behalf, ensuring you receive the biggest return for the least possible effort.

Jumpstart is a leading R&D tax relief specialist, guiding companies through the complexities of submitting claims to HMRC.  Since inception eight years ago, we have realised over £100 million benefit for our clients. Right now, we’re submitting an average of 500 claims per year to HMRC.

Our technology-based approach to claim preparation is undertaken by PhD qualified Analysts with extensive industry experience in their own specific fields of science or technology. Our Technical Analysts are not only industry sector experts, but equally knowledgeable when it comes to the HMRC’s legislation, ensuring maximised, accurate and robust claims.

In a climate where the value of claims being disputed by HMRC has grown by almost 400% over a twelve-month period, the fact that we offer free enquiry defence as standard on every claim we prepare and submit gives our clients a cast-iron security.

To arrange a free consultation to discuss your own R&D tax relief specific circumstances, to identify how we can work with your team to improve the claim process and realise greater value for your business, contact the Jumpstart team on 0131 240 2900 or [email protected].