Research and Development (R&D) expenditure credit

The R&D expenditure credit (RDEC) gives Corporation Tax relief to companies that do research and development.


RDEC replaced the large company scheme in April 2016.

The credit is calculated at 11% of your company’s qualifying R&D expenditure. The credit is taxable. Depending on whether your company is profit or loss making the credit may be used to discharge the liability or result in a cash payment.

To claim the relief you need to show how your project meets our definition of R&D.

RDEC can also be claimed by small and medium-sized enterprises (SMEs) who have been subcontracted to do R&D work by a large company or who have received a grant or subsidy for their R&D project. You might do this as a SME if you can’t claim R&D relief for SMEs.

Costs you can claim

You can claim costs on the project from the date you start working on the uncertainty until you develop or discover the advance, or the project is stopped.

Staff costs

For staff working directly on the R&D project, you can claim a proportion of their:

  • salaries
  • wages
  • Class 1 NICs
  • pension fund contributions

You can claim for administrative or support staff who work to directly support a project. For example, human resources used to recruit a specific person to work on the project. You can’t claim for clerical or maintenance work that would have been done anyway, like managing payroll.

You can claim 65% of the relevant payments made to an external agency if they provide staff for the project.

If you made a claim by following the ‘Reimbursed expenses clarification raised in the R&D Consultative Committee meeting’ note issued by HMRC to the Research and Development Consultative Committee on 8 October 2014, you can make an amended claim for reimbursed employee expenses.

You can claim by following the procedure shown in section CTA09/S1123 of the Corporate Intangibles Research and Development Manual (CIRD) 83200 manual.

You can only make an amended claim for reimbursed expenses in this way until 31 January 2018.

Subcontractor costs

Subcontracted expenditure cannot be claimed unless it is directly undertaken by:

  • a charity
  • a higher education institute
  • a scientific research organisation
  • a health service body
  • an individual or partnership of individuals

Consumable items

You can claim for all consumable items used up in the R&D. This includes:

  • materials
  • utilities

Costs that can’t be claimed

You can’t claim for:

  • the production and distribution of goods and services
  • capital expenditure
  • the cost of land
  • the cost of patents and trademarks
  • rent or rates

Work out the period you can claim for

The project starts when you begin working to resolve the uncertainty. You’ll need to identify the technical issues that need to be resolved, and make sure there isn’t an existing solution that has already been worked out.

The project ends when you solve the uncertainty or stop working on it. The period you claim R&D relief for should end once you have a working prototype that solves the problem, and before you go into production.

Your R&D may restart if you find another scientific or technological uncertainty after you’ve started producing the product. If this happens, you can claim for another period of R&D while you try to resolve it.

How to claim R&D relief

You can make a claim for R&D relief up to two years after the end of the accounting period it relates to.

You can claim the relief by entering your enhanced expenditure into the full Company Tax Return form (CT600).

To calculate your enhanced expenditure you need to:

  1. Work out the costs that were directly attributable to R&D.
  2. Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.
  3. Add all costs together.
  4. Multiply the figure by 11% to get the expenditure credit.
  5. Enter this figure into your tax return.

Apply the expenditure credit

You must go through the following steps to apply the expenditure credit.

  1. The credit must be used to settle your Corporation Tax liability for the accounting period. However, you’ll need to pay Corporation Tax on the credit. If the credit means you are due a repayment for Corporation Tax that has already been paid, the interest will be calculated on a last in, first out basis (LIFO).

  2. If you have RDEC remaining after step 1, the amount is reduced by applying a notional tax charge to it. The notional tax charge must be based on the main rate of Corporation Tax for the accounting period. If the amount remaining after step 1 is higher than what the value of the total credit minus the notional tax charge would have been, you must use the value of the total credit minus the notional tax charge in step 3.

  3. The credit must not be higher than your company’s total expenditure on R&D workers’ PAYE and NICs for the accounting period. The amount over this limit will be added to any expenditure credit in the next accounting period.

  4. The remaining amount is used to pay any outstanding Corporation Tax liabilities for any accounting periods.

  5. The credit can be surrendered in whole or part to any group member.

  6. The credit can be used to discharge any other company liabilities, like VAT or liabilities under a contract settlement.

  7. The final amount can be paid to your company.

How to support your claim

You can add the details of your claim when you submit your return.

It will help your claim if you give us a short summary that explains how your projects:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • overcame this uncertainty
  • could not easily be worked out by a professional in the field

You can also show how your total costs were apportioned to the R&D project, for instance the percentage of total staff costs or utility costs used. You can also show that relevant subcontractor or external staff payments were reduced to 65%.

Published 1 January 2007