R&D Tax reliefs: R&D expenditure credit (RDEC) Scheme: overview
Finance Act 2013 introduced a stand-alone credit to be brought into account as a receipt in calculating the profits of large companies for research and development (R&D) expenditure incurred on or after 1 April 2013 known as the Research and Development expenditure credit (RDEC). The RDEC scheme does not alter the way qualifying activity is identified or how qualifying expenditure is calculated. It is only the method of giving the relief that has changed.
RDEC and the current large company super deduction scheme will co-exist until 31 March 2016. The existing large company scheme rules and benefits will remain unchanged until it ceases in April 2016. After this date the large company scheme will only continue for expenditure incurred prior to that date until such expenditure is treated as deductible in a CT computation (para 28 Sch 15 FA2013). Once a company has claimed RDEC for the first time, it has effectively elected into RDEC and the election is irrevocable.
The new legislation is contained at CTA2009 Chapter 6A with consequential amendments to FA1998, FA2007 and CTA2010. Part 13 of CTA2009 is amended to reflect the abolition of the Large Scheme from 1 April 2016.
For profit making companies the credit discharges corporation tax liability that the company would have to pay. Companies with no corporation tax liability will benefit from the RDEC either through a cash payment or a reduction of tax or other duties due.
Claims by a SME
The introduction of RDEC does not affect claims made under the SME scheme. However, SMEs will be able to claim the RDEC in the same circumstances as they can currently claim under the existing large company scheme. As with loss making large companies SMEs will now be able to claim a payable credit under the RDEC subject to certain restrictions and set offs on such claims.
Features of the RDEC scheme
- A large company cannot generally claim expenditure on subcontracted R&D as qualifying expenditure CIRD84200.
- Subject to certain conditions, a large company can claim payments made as contributions to independent research as qualifying expenditure CIRD82200.
- Under the RDEC scheme as with the large company scheme any subsidies received are not deducted from the qualifying R&D expenditure CIRD89000.
- There are provisions for the recovery of relief where a company receives a refund of some qualifying R&D expenditure (CIRD87500).
Chapter 6A CTA 2009 S104B
Claims will be made in the Company Tax Return or amended return and subject to the normal time limit for submitting a return or an amended return i.e. 2 years from the end of the accounting period.
Entries will be required on the CT600 at any of box numbers 87, 89, 93 and 143 depending on whether the credit is discharging liability or gives rise to a payable credit or a combination of both. No entries are however required at boxes 99 to 102(unless a claim for enhanced expenditure is also required for the period). Please see FAQs below for guidance on CT600 box entries
Link to CT600 Guidance
A consequence of a claim to RDEC is an automatic election; therefore no formal election is required. However, the election to claim RDEC is irrevocable and once made it is not possible to change back to the large company scheme. So for companies who make a claim for RDEC before 1 April 2016, the ability to claim under the existing large company scheme ceases on the first day of the accounting period for which the RDEC claim is made.
S104B confirms that a company may not claim RDEC and for relief under Part 13 (additional relief for expenditure on research and development) in respect of the same expenditure.
SME companies can continue to claim either an enhanced deduction or a payable credit under the SME scheme but in addition can claim RDEC where the expenditure does not attract SME relief but instead qualifies under the large company scheme or RDEC scheme due to one of the specific exclusions from the SME scheme set out in CIRD89740.
Where a company has incurred qualifying R&D expenditure prior to 1 April 2013 and these costs have been held on the balance sheet the R&D benefit should be claimed under the large company scheme even if the release occurs after 1 April 2016.
At the end of the RDEC guidance there are Notes to R&D expenditure credit (RDEC) and four worked examples: CIRD89900.