All you need to know about the RDEC scheme
What difference does the size of your business make when you’re claiming tax back to help with the cost of scientific or technological research? There are two schemes for businesses wanting to claim research and development tax credits: the SME scheme and the RDEC scheme.
Small companies are companies which have fewer than 500 employees, and either a turnover of less than €100 million or a balance sheet of less than €86 million. They can claim under the SME scheme.
Otherwise, HMRC defines you as a large company and you will claim under the RDEC scheme.
You will also usually need to claim under the RDEC scheme if you are a small business which has received state aid, such as a grant or subsidy, or has been subcontracted to do research and development work by a large company.
How much money can I get back under the RDEC scheme?
The RDEC scheme gives you tax relief of 12 per cent. This applies whether you’ve made a profit or a loss. It’s considered a cash benefit, so you’ll have to pay corporation tax on it. So, for example, if you’ve spent £100,000 on research and development, you’ll be able to claim relief of £12,000 (12 per cent), or £9,720 after corporation tax of 19 per cent. You can claim RDEC throughout the time you are doing the research and development work.
What can I claim for?
You can claim for costs such as:
– staff costs: salaries, national insurance contributions, pension payments
– money spent on agency workers
– utilities: electricity, water, heat
– some software costs
– contributions to independent research
– payment of clinical trial volunteers
You can claim for administrative or support staff who work to directly support a project – for example, recruiting someone to work on the project – but not for work that would have been done anyway, like managing payroll.
What can’t I claim for?
You can’t usually claim for these things:
– subcontracted expenditure, unless it is undertaken by a charity, higher education institute, scientific research organisation, healthcare body, individual or partnership of individuals
– production and distribution of goods and services
– capital expenditure
– the cost of land
– the cost of patents and trademarks
– rent or rates
You can make a claim for research and development tax relief up to two years after the end of the accounting period it relates to.
If your work involves scientific or technological research, you may be able to claim a considerable amount of tax back through research and development tax credits. While this can be a complex process, there are professional firms who are dedicated to this type of claim and can guide you through it. Contact an R&D tax specialist today for help with making your claim.