The Large Company Scheme
Why the picture of an elephant you may ask?
Following a number of changes to the SME scheme in recent years, the Large Company Scheme had been left alone. It was fast becoming the elephant in the room during the Government’s yearly Budget.
However, after the 2012 Budget – George Osborne proposed a reboot for large companies, namely with the introduction of the Above The Line (ATL) R&D Tax Credits scheme, taking effect for expenditure incurred from 1 April 2013. This was a significant shift in the way R&D tax will work for large companies and LinkStep saw this as a very positive move.
R&D Expenditure Credits – RDEC
The ATL scheme has since been renamed to the “R&D Expenditure Credit”, also referred to as “RDEC”. Notably, similar to the SME scheme, loss-making companies can now also receive a cash credit for qualifying R&D activities. However, the mechanism moves the delivery away from a tax-based refund or tax credit, and applies a direct discount to the expenditure incurred.
From 1st April 2020, the RDEC rate increased – from 12% to 13% of the qualifying expenditure. This was one of a number of measures aimed at achieving the Government objective of increasing R&D in the UK to 2.4% of GDP by 2027.
The RDEC is particularly attractive to business because it enhances operating profits and is payable to a company irrespective of its tax position. The rate increase suggests it will be here for the long term enabling qualifying companies to plan for future R&D spend.
A simplified explanation is that the new RDEC scheme allows companies to claim an ‘expenditure credit’ for qualifying R&D expenditure incurred. The credit, payable even if in a loss-making position, is still taxable. The credit will also be accounted for as a reduction of R&D expenses in the statutory accounts.