What you need to know about the RDEC Scheme
Companies of all sizes have been benefitting from research and development tax credits since the scheme was introduced in April 2000. The initiative was introduced to ensure Britain remains at the forefront of scientific and technological innovation and offers remuneration for R&D expenditure for eligible projects.
Two schemes are available: the SME scheme and the R&D Expenditure Credit (RDEC) scheme. The former is reserved for businesses of under 500 employees, who have an annual turnover of less than €100m or a balance sheet total under €86m. Any businesses exceeding these figures fall under the latter scheme, as do those in receipt of non-Notified State Aid grants.
Claiming under the RDEC scheme
Claiming under the RDEC scheme has similar qualifying criteria to claiming under the SME scheme. Namely, that the project for which tax relief is being sought should be seeking to resolve a scientific or technological uncertainty that cannot be easily worked out by another professional in that field. The guidance given by HMRC is deliberately vague, thereby enabling a range of activities in a multitude of sectors to qualify for the tax credits.
What can be claimed?
The tax credit equates to 12% of your businesses’ qualifying expenditure – costs such as workers’ salaries, Class 1 NICs payments, consumables and utilities are examples of this. Any costs incurred from the date the work started to the date the project was completed or abandoned can be claimed for. This credit is then taxed at the standard Corporation Tax rate, making the value of the benefit equivalent to 10p of every £1 spent on R&D activity.
Unlike the SME scheme, any claims made appear above the line – i.e. they appear on any income statement or profit-and-loss account, thus having a positive impact on visible profitability.
Claims are processed as part of the Corporation Tax return, and any remuneration is awarded as a reduction in your company’s CT bill. The tax relief can represent a significant cash injection for your business, in some cases enabling you to continue your R&D projects for another year.
Support your claim
Alongside your claim, it’s advisable to provide supporting documents that detail the nature of the work, the challenges faced, and the expenditure incurred. Doing so provides a better chance of a successful claim, and one which rewards you with the full remuneration you are due.
During the project, keep accurate records of the R&D work undertaken, and keep notes on how uncertainties were overcome. This makes providing evidence much easier come claim time.
As tax is a notoriously complex area, it’s recommended that companies seek assistance from R&D tax professionals when it comes to confirming the eligibility of a claim and processing it. R&D Tax Solutions in Manchester has extensive experience with helping businesses in a range of sectors to make successful claims, and can help your business to receive the rewards it is due for innovative work.