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 In a digital, “big data” world, this definition seems outdated.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.

Do you have any questions about research & development?

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