"What if I cannot claim R&D?" There will be some instances where a company will be unable to claim through the R&D Tax Credits scheme. Large companies (those with over 500 employees) for example will have to use an alternative route known as Research and Development Expenditure Credit (RDEC).

RDEC is similar to R&D in the sense that it uses the same defining elements to establish qualifying work and qualifying expenditure. As of 1 April 2015 the tax relief for RDEC increased to 12% from the previous rate of 10%. This means that a company can either benefit from a reduction of tax payable, or payable credit should the company be unsuccessful and operating at a loss.

Most SME companies will be able to claim under the usual R&D Tax Credits scheme described in the above sections, however in some cases they will only be able to claim tax relief through RDEC. The first example is where the SME is carrying out a R&D project on behalf of a large company (i.e. it has been subcontracted to complete R&D). In this situation the company would only be able to claim tax relief through RDEC.

The second example is where a SME has received a grant or subsidy for a R&D project. If that is the case then some of the expenditure may be claimed through RDEC. However, if the SME runs multiple projects of which only one or some of the work has been subsidised or grant-funded then those which are not are eligible to claim under R&D.

RDEC

Example –

  • Total expenditure on R&D project—£100,000
  • Amount of grant received—£70,000 (of which some may be eligible for RDEC tax relief)
  • Balance of expenditure—£30,000 (of which some may be eligible for R&D tax relief)

Next Step

How do I claim R&D Tax Credits?

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