R&D Tax reliefs: R&D expenditure credit (RDEC) scheme: calculation of credit
Chapter 6A CTA2009 S104M
The rules for identifying qualifying activity and calculating qualifying expenditure remain unchanged. It is only the way relief is given that is different.
Relief is now given as a taxable credit calculated as a percentage of the qualifying expenditure for the relevant accounting period. The expenditure credit rate is currently set at 12% of qualifying expenditure. For North Sea ring fenced trades the relevant percentage is 49% ensuring that ring fence companies receive a similar benefit to that received under the large company scheme.
The payable credit element is however subject to certain restrictions (see CIRD89780):
- The credit is first used to discharge the CT liability of the claimant company for the same accounting period.
- The balance may be subject to an adjustment to reduce the amount available to a net of tax amount which is available to discharge future CT liabilities.
- Any balance remaining is capped by the PAYE/NIC of the R&D staff (with no restriction for time spent on qualifying R&D activity) and externally provided workers provided by the same group as the claimant (restricted to the proportion of time spent on qualifying R&D activity). Any amount which exceeds the cap is carried forward and treated as an expenditure credit for the next accounting period.
- The amount remaining that can potentially be a payable credit then discharges corporation tax liabilities for any other period.
- If the company is a member of a group it may surrender any amount remaining for a corresponding accounting period.
- The payable credit element remaining is applied in discharging any other outstanding liability of the company to HMRC.
- Claims are subject to a ‘going concern’ test (see CIRD81130).
After all restrictions and set offs have been applied, the remaining amount is payable in cash.
Processing the payment of the RDEC
Claims will generally be processed manually. When a return is made with a claim for RDEC, the applicable set offs will be made against the company’s record with an effective date of payment (EDP) of the day of set-off. If there is a cash payment due to the company, the EDP will be the day all set off has been actioned. The RDEC does not carry interest however our current systems mean that small amounts may arise as a result of the processing. HMRC will not seek to recover these amounts, however it is important to note that they are not an entitlement.