In our latest 2020 Budget Update, we’ll take a look at the new rules around R&D tax relief. This is potentially a great way to reduce your tax burden.
Last week our 2020 budget update took a look at the headline talking points:
- Increased public spending
- Emergency coronavirus slush fund
- Entrepreneur’s Relief capped
- VAT abolished on digital books
Today we’ll look at a change to the R&D tax relief rules. If you want to get into the fine detail, check out the HMRC page.
What Is R&D Relief Expenditure Credit (RDEC)?
According to the HMRC wording, RDEC is a:
Tax relief for large companies and some small and medium-sized enterprises that carry out qualifying Research and Development.
It was introduced in April 2013 and was originally set at 10%. After steady increases, the 2020 budget has set the rate at 13% (up 1%). Accounting Web explains that:
The RDEC is an ‘above the line’ taxable credit, so the benefit of the rate is currently 9.72% of qualifying expenditure. With the combination of the corporation tax rate being held at 19% and the RDEC rate rising to 13%, the benefit of this relief will rise to 10.53%.
How Does It Work?
RDEC is primarily for large companies. Smaller companies would typically claim the dedicated SME R&D relief. However, even SMEs can claim RDEC if the activities are either:
- Subsidised expenditure
- Expenditure on R&D subcontracted to them by a large company
- Capped R&D expenditure
If possible, we’d recommend applying for the SME relief as the terms are more generous.
Any Other Business
The chancellor decided not to make a firm decision on reinstating the PAYE/NIC cap for SME relief. This has been rumbling on for eight years now, but small business will have to wait another year before a decision is made.
There is also no decision as yet on whether the cost of acquiring data (for R&D projects) can be considered “eligible expenditure”. At the moment, only “software or consumable items” can be offset. In a digital, “big data” world, this definition seems outdated.
If you’d like to discuss how you can use these allowances to reduce your tax liabilities, please get in touch.