What are the R&D tax credit rates for the RDEC scheme?

For expenditure incurred on or after 1 April 2023, the RDEC scheme offers a tax credit of 20%. This enables companies to claim back up to 20p (pre-Corporation Tax) for every £1 spent on qualifying research and development (R&D) activities. Unlike the scheme for SMEs, this rate remains the same whether you are profit- or loss-making.

Prior to the introduction of a merged scheme based on the RDEC model, which came into effect for accounting periods beginning on or after 1 April 2024, the R&D expenditure credit (RDEC) scheme was primarily for large companies. These are businesses with 500 or more employees and either more than €100m turnover or €86m gross assets.

Some SMEs also claimed R&D tax credits via RDEC for a portion, or all, of their R&D expenditure. This is because the rules for the SME R&D tax credit scheme included some restrictions for grant-funded projects.

How much is RDEC worth

The effective (net) benefit will depend on the company’s marginal rate of Corporation Tax but for main rate taxpayers from 1 April 2023 it increased from 10.53% to 15%. The increase in benefit for small profits rate taxpayers and marginal rate taxpayers will be slightly higher.

An RDEC claim is paid out in the form of a taxable credit of 20% of your identified qualifying expenditure. As the credit is taxable, it results in a cash benefit of 15% after tax. There is a fixed offset procedure for the credit. It is calculated as a deduction from your tax bill, or if there is no tax payable, the net amount can be claimed as cash.

You can see how this is calculated here:

_{*Effective rate – the rate at which a company will benefit from the R&D incentive when taking into account tax savings from R&D enhancements, rates of credit available and tax payable. For example, a company spending £1m on R&D and claiming RDEC, receives a gross credit of £200k. If tax is applied to this credit at 25%, the company will actually receive a benefit of £150k, equating to an effective rate of 15% of its R&D expenditure.}

_{**For accounting periods starting on or after 1 April 2024, the R&D intensive threshold falls from 40% to 30%.}

The new RDEC rate and the merged scheme

From 1 April 2023, the government increased the RDEC rate from 13% to 20%. This increase in generosity was good news for large companies – as well as the SMEs who also used the RDEC R&D tax credit scheme. This paved the way for the introduction of a merged scheme for accounting periods beginning on or after 1 April.