R&D Expenditure Credit (RDEC) increased to 12%
The RDEC is currently claimed by those predominantly large companies that are defined as exceeding the SME size limits. In addition companies that would otherwise be an SME, and able to claim under the more generous SME R&D tax relief scheme when these size thresholds are considered, also have to claim under the less generous RDEC scheme if their R&D projects are subcontracted to them or if the project is subsidised or grant funded. The RDEC is offset against a company’s Corporation tax liability. When a company is not paying Corporation Tax it may be able to claim a cash payment of part of the RDEC or set this off against other tax or duties due.
The RDEC is currently set at a rate of 11% for qualifying expenditure on or after 1 April 2015. In the Autumn Budget today the Chancellor announced, as part of a package of measures to invest in support for R&D, an increase in the RDEC rate to 12% for qualifying expenditure incurred on or after 1 January 2018. This increase is design to achieve a behavioural change in the business community that will contribute to achieving a target for UK R&D investment becoming 2.4% of GDP. The change will increase the net benefit from 8.91% to 9.72% at the 19% rate of corporation tax. Legislation will be included in the Finance Bill 2017-18 to effect the increase in rate.
The budget sets out the cost of this increase in rate as being some £755m, in the years 2017-18 to 2022-23.
As part of a move to increase certainty for large business and to increase awareness among SMEs , the government will pilot a new Advanced Clearance service for Research and Development (R&D) expenditure credit claims, to provide pre-filing agreement for 3 years. In addition a campaign will be launched to extend the efforts made to date to increase awareness of eligibility for R&D tax credits among small and medium-sized enterprises (SMEs). .
This increase in the RDEC rate will enable companies claiming under the RDEC scheme to invest more in their R&D efforts. We believe that this is a positive measure although there had been a desire from business for the SME rate to be increased as well as the benefit for tax paying companies falls in line with the decreasing corporate tax rate. We await details of the new advanced clearance service with interest and again this must be seen as a positive step.
If you would like to know more about this, or discuss it’s application to your company, then please contact John Moore on 0207 292 8850 or at firstname.lastname@example.org
This briefing is prepared by Kingly Brookes LLP, a limited liability partnership. For further information on any of the material contained in or referred to in the briefing, please contact us. This briefing note is intended to keep our readers up to date with the developments in this area, but it is a general guide only and is not intended to be a comprehensive statement of the law and practice in this area. No liability is accepted for the opinions it contains or for any errors or omissions.