Research & Development Expenditure Credit (RDEC) Overview For The UK
The RDEC has been available to companies since 2000. RDEC has similar qualifications as the US R&D credit allowing companies to take advantage of both.
Did you know?
- Only companies filing Form CT600 are allowed to claim the credit including Private and Public Limited Companies but not Partnerships.
- Credit is equal to 12% of qualified R&D costs with a net benefit of roughly 9% after tax.
Companies may claim the credit for the two previous financial years:
- Original returns:
- Tax returns are due 12 months after accounting period ends
- Tax payments are due 9 months after end of accounting period
- Amended returns:
- Returns may be amended within 12 months of filing deadline
R&D TAX CREDIT SCHEME: THE FOUR PART TEST
What is The Scientific or Technological Advancement?
Arts, humanities, economics, and other social sciences do not qualify.
How Were The Uncertainties Overcome?
An unsuccessful attempt to overcome uncertainty does not preclude qualified research.
What Scientific OR Technological Uncertainties Were Encounters?
The feasibility or process for achieving the result.
Why Wasn’t The Knowledge Being Sought Readily Deducible by competent professionals?
Others having attempted or were successful but process not publicly known is not qualified activity.
Qualifying Activities Include:
Product developmentManufacturing process improvementSoftware developmentEngineering and designOther professional and technical Qualified Expenses Include:
Salaries and wages65% of contractorsMaterials employed and consumed (cannot be sold)Proportion of utilities (water, fuel, and power)Cost of software directly employed in the R&DThe Utilization Process in 7-Steps:
Example scenario: 1M in revenues, £100k in R&D costs, £40k in related PAYE Costs, £500k corporate tax loss
Apply against corporation tax
- £100k * 12%= £12k credit, based on 12% RDEC rate
- No corporate Tax Utilization based on current year loss
Reduce To Net tax Amount
- £12k * 19%= £9,720 available for this year based on main Corporate Tax Rate
- £2,280 goes to future carry forward
Limit To PAYE/NIC Of R&D Staff
- £40k PAYE > £9,720 credit, entrie amount goes to step 4
Apply To Other Tax Liabilities Of Company (PAYE, VAT, ect).
- Apply to other outstanding Liabilities such as PAYE or VAT
- Entire amount moves to step 7
Elect to Surrender For Group Relif
- Elect to surrender to group
- Entire amount moves to step 6
Apply against Corporation Tax From Other Accounting Periods
- Apply to other accounting periods if applicable entire amount moves to step 5
Apply against Corporation Tax From Other Accounting Periods
- Apply to other accounting periods if applicable entire amount moves to step 5
Elect to Surrender For Group Relif
- Elect to surrender to group
- Entire amount moves to step 6
Apply To Other Tax Liabilities Of Company (PAYE, VAT, ect).
- Apply to other outstanding Liabilities such as PAYE or VAT
- Entire amount moves to step 7
Cash Credit To The Company
- Amount payable to company = £9,720
WHY SOURCE ADVISORS
- Source Advisors has provided specialized tax services to CPAs and their clients for over 35 years
- 230 years of R&D experience and over 4,300 studies completed
- Over $1.6 billion in credits claimed
- Ability to leverage existing knowledge of US research activities to streamline the UK R&D study process
- Source Advisors offers a team of highly experienced and dedicated R&D professionals, including CPAs and attorneys. Our team has the in-depth technical and industry expertise to manage each stage of the R&D process from initial assessment through credit documentation and audit defense
- Efforts include a thorough preliminary analysis of potential qualified projects, related expenses, and a usability analysis to estimate overall tax savings prior to starting the full engagement
- Fees include audit defense should an audit occur