R&D Expenditure CreditRDEC Scheme

What is the RDEC scheme?

Large companies are those with a staff headcount (either individually or within a Group) of 500+, or Turnover over €100m and Balance sheet assets over €86m. If an SME has been subcontracted by a large company for an R&D project or received subsidies such as grant funding, then it would also have to claim under the RDEC scheme, rather than SME.

The RDEC scheme allows eligible companies to claim a tax credit worth up to 20% of their qualifying R&D expenditure and a net tax saving of 15% (since 1 April 2023). Please note for periods up to 31 March 2023, the previous rate of 13% (net 10.7%) will still apply.

R&D Tax Reliefs are changing

In November 2023, the UK government announced that the current SME and RDEC schemes will be combined into a single R&D Tax Credit scheme. This will take affect for accounting periods beginning on or after 1 April 2024 and will adopt the existing RDEC rate of 20% For loss-making entities in the merged scheme, the notional tax rate will be reduced from 25% to 19%.

For more information about the incoming changes to the scheme, read our full Autumn Statement summary.

What projects are eligible for the RDEC scheme?

To qualify for the RDEC scheme, a project must meet HMRC’s strict criteria. However, while the criteria are specific, many eligible companies do not realise they qualify.

The project must be seeking to achieve an advance in science or technology, through the resolution of scientific or technological uncertainties. It must also relate to the company’s trade. The R&D activities must be carried out by the company itself. Unlike the SME scheme, you cannot subcontract out R&D activity unless it is to an individual, Partnership or qualifying body, such as a University or Scientific Research Organisation.

It is important to note that each project will be considered on its own merits, and not all projects will qualify. This is why we believe it is essential to consult an RDEC specialist to verify your eligibility.

You can also check your eligibility in the free Radius R&D Tax Relief Eligibility Checklist.

How is RDEC different to the SME scheme?

The UK is unusual in having two separate schemes that offer tax incentives for research and development (R&D) activities. Indeed the Treasury and HMRC are considering merging both schemes into a single RDEC scheme from April 2024, with a consultation in place to consider this open until 13 March 2023.

Primarily the schemes are similar in terms of the eligibility of what projects qualify as R&D for tax purposes. The main difference is in the eligible costs and exclusion of subcontracted R&D costs in the RDEC scheme, bar for certain circumstances already mentioned earlier.

The SME (Small or Medium-sized Enterprise) scheme is also more generous with an effective Corporation Tax saving of 21.5% (or 24.75% for periods up to 31 March 2023).

It is important to understand the differences between them, and which is the correct scheme for your business.

• SME – For all companies that qualify as an SME, undertaking their own R&D projects.
• RDEC – Large businesses or SMEs who have been subcontracted to perform an R&D project by a Large business or have received subsidies such as a Grant.

R&D Tax Reliefs done properly – Speak to Radius today

The Radius team at Shorts are full-time specialists in R&D Tax Reliefs, and this includes extensive work for clients within the RDEC scheme.

We do R&D Tax Reliefs properly. That means ensuring we consider all the possible ways we can maximise your RDEC claim within the scope of the legislation. It means we use detailed quality assurance processes to ensure claims are fully optimised and compliant. It also means we make preparing your company’s claim as easy as possible for you.

Robust claims, prepared and maximised by specialists with minimum disruption to you.