R&D Expenditure Credit
There is a new type of R&D “tax relief” called an “R&D Expenditure Credit” or “RDEC”. Confusingly whilst it is in the tax legislation, and is administered by HMRC, it is not classed by HMRC as a tax relief.
The RDEC can provide valuable cash incentives in the form of “expenditure credits” to companies who are performing R&D. The credits can generate a cash rebate of up to 8% of the qualifying R&D expenditure. The RDEC should be applicable to many SMEs in the North West where they undertake grant funded R&D projects or where the SME is not able to claim under the “R&D scheme for SME’s” because the company is performing R&D as a subcontractor for another company.
Unusually the RDEC amount claimed has to be included in the statutory profit and loss account of the company in the year of claim. This means the R&D identification and computational work will need to be undertaken before the statutory accounts, are signed off.
The key point about RDEC is that whilst it is administered by HMRC it is not included in the tax computation as a tax relief. If the correct RDEC claim amount is not included in the accounts for the period, then the correct RDEC credit cannot be administered by HMRC.
If the RDEC is not in the accounts at all, then the company will have to wait until the following year to get the benefit (and will need to include it in the following year’s accounts). Likewise, if the amounts of potential RDEC identified are greater than the amounts included in the accounts, then it will be the amounts in the accounts which will be paid and the company will have to wait until the following year to include the extra RDEC in the accounts.
Going forward, to make the most of your R&D claims you will need not just an adviser who can capture the costs and projects, but one who can then translate that information into the RDEC which is included in the accounts.
If you would like more information, please contact Rachel Marsdin on 01524 62801.