SMEs and RDEC

What is RDEC?

RDEC (research and development expenditure credit) is a UK government tax incentive designed to support innovative companies for investing in research and development (R&D). It is primarily used by large companies and by SMEs in some circumstances, such as if they’re been awarded grant funding.

One of the benefits of RDEC claims is that they can be accounted for above-the-line in your income statement (also known as your profit-and-loss account), providing a positive impact on visible profitability in your accounts. This visibility has a positive impact on R&D investment decisions.

SMEs

As an SME, you should be interested in investigating if you qualify for RDEC if:

  • You have received a grant or subsidy
  • You have carried out subcontracted R&D on behalf of a large business

SMEs often miss out on claiming R&D Tax Credits if they have received a grant, as there is often a misconception that they cannot claim. Accepting a grant can restrict access to the R&D Tax Credit scheme, but does not exclude you from RDEC.

Additionally, if you have been subcontracted by a large company you can claim via RDEC for this expenditure. However, if you are working for another SME they will claim for these activities. Before claiming it is important to assess the nature of your subcontracting agreement and who owns the R&D.

Qualifying expenditure

There are defined categories of R&D expenditure that can be included within an RDEC R&D Tax Credit claim.

  • Staff costs, including salaries, employer’s NIC and pension contributions, as well as some reimbursed business expenses
  • Money spent on Externally Provided Workers (EPWs) and some subcontractor costs
  • Expenditure on consumables and materials like light, power and heat that are used up or transformed in the R&D process
  • Some types of software costs
  • Money paid to clinical trial volunteers
  • Contributions to independent research
Get In Touch

Ensuring that R&D Tax Credits and RDEC is applied correctly means that you will not miss out on potentially significant income. If you would like to discuss how to maximise your R&D activities, get in touch with one of our consultants today.

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