09 Nov 2020

Large Company Scheme R&D Tax Relief Claims – Why Bother?

Dave Schorah
Consultant

Large Company Scheme R&D Tax Relief

Due to the amount of money large companies are likely to be spending on R&D – the RDEC Scheme can be extremely beneficial! The Research and Development Expenditure Credit (RDEC) offers Large Enterprises (LE’s) a tax credit incentive of 13% on all qualifying R&D expenditure.

What is a Large Enterprise for R&D Tax Credit purposes?

By HMRC definitions, a Large Enterprise is considered a company that has more than 500 full-time employees within the business or group, and either more than €100m turnover or €86m gross assets.

How much is the RDEC Scheme worth?

Businesses using the RDEC Scheme can claim 13% in tax relief on eligible R&D expenditure. This means that after Corporation Tax is deducted (as the credit is taxable), a claim is worth £10.53 for every £100 – the table below shows how this is worked out:

TBAT Innovation Ltd - RDEC Scheme Illustration - £10.53 per £100 of eligible R&D expenditure

All Large Enterprises are eligible to claim the same percentage of tax relief, regardless of whether they’re loss-making or profit-making.

For the Financial Year 2018-19, 3310 claims were made by Large Enterprises using the RDEC Scheme. The average claim value for Large Enterprises was £632,000 and a total of £2.17 billion has been claimed so far.

The Benefit of the Large Company Scheme R&D Tax Relief

Large Companies are likely to have an R&D function dedicated to producing new products, processes or services and therefore are likely to be spending large amounts on research and development activities. The total claim value can help fund future R&D investment and bring products or systems to market more quickly.

Above-the-line

The benefit received from Large Company Scheme R&D Tax Relief can be accounted for above-the-line on the company’s profit and loss statement, meaning it can improve the profitability of the business’ accounts.

Eligible Expenditure

There are a wide range of costs that are eligible to be claimed via the RDEC Scheme, these include:

  • Staff costs – salaries, employer’s NIC and pension contributions and reimbursed business expenses.
  • Externally Provided Workers (EPWs) and some subcontractor costs.
  • Materials and utilities that are used or transformed in the R&D process.
  • Software costs.

These costs have to be calculated carefully, ensuring a claim is only made for the proportion used for R&D purposes.

Barriers to claiming

Within Large Enterprises it can be a complex and sometimes difficult task to keep track of R&D expenditure across multiple departments, projects and sometimes multiple businesses within a group.

How TBAT can help

We work closely with our large clients to identify all eligible expenditure across the business(es) and help to implement methodologies which make the process of claiming in future years much simpler.

In addition, our team work closely with technical staff to build robust evidentiary reports to support maximised R&D Tax claims. Contact us for further information.

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