The Large Company Scheme
R&D Expenditure Credits – RDEC
Large companies are defined as any company that fails the SME test (summarised here).
Large companies are able to claim under a dedicated R&D Tax scheme named “Research and Development Expenditure Credits”, also referred to as ‘RDEC’.
Notably, this is similar to the SME scheme in that loss-making companies can 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 to instead apply a direct discount to the expenditure incurred. This means that the calculation for RDEC can be made regardless of a claimant’s tax position.
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.