As a large company in the UK, there’s never been a better time to invest in research and development. The government has made the Research and Development Expenditure Credit (RDEC) scheme even more generous by allowing organisations to claim up to 20% of qualifying expenditure – up from 13% previously. This increase represents a substantial financial incentive for large companies to invest in making scientific and technological advances.
From medical innovations to self driving cars, R&D plays a critical role in fostering innovation and driving product development. It therefore comes as no surprise that R&D Tax Credits have seen significant uptake from large companies, with £2.4 billion claimed through the RDEC scheme for the 2021-22 tax year. This equates to £18.6 billion of qualifying research and development expenditure, 42% of all eligible R&D spend. In this article, we explore the benefits of R&D Tax Credits for large companies in the UK, learn about their history, and understand how the generous RDEC scheme fosters innovation and growth.
The history of R&D Tax Credits for large companies
R&D Tax Credits were first introduced in the UK in 2000, originally targeting just SMEs. Recognising the importance of incentivising innovation across all business sizes, the Large Company (LC) scheme was launched in 2002. This move was part of a broader government strategy to stimulate productivity and economic growth.
In April 2013, the RDEC scheme was introduced, gradually replacing the Large Company scheme, which was officially abolished in the 2016-17 financial year. A key difference between the two schemes was that the RDEC allowed loss-making companies to claim credits, whereas the LC scheme only offered benefits to profit-making entities. This change broadened the scope of companies that could take advantage of R&D Tax Credits.
The UK continues to operate two R&D Tax Relief schemes today: RDEC for large companies and the SME scheme. The latter offers more generous relief for SMEs, reflecting the government’s strategy of supporting innovation across businesses of all sizes.
How RDEC works for large companies
If you’re a large company (i.e., if you have over 500 employees and either an annual turnover exceeding €100 million or a balance sheet over €86 million) then you can claim RDEC for working on innovative projects.
The RDEC scheme follows “above the line” treatment, which means the R&D benefit is recognised as income in the company’s profit and loss account, rather than being deducted from Corporation Tax. This visibility is designed to encourage more investment in R&D by making the benefit of the relief more apparent to key decision-makers within the company.
Calculating R&D Tax Credits for large companies
Calculating R&D Tax Credits for large companies under the RDEC scheme is relatively straightforward. The rate on expenditure from 1 April 2020 to 31 March 2023 is 13%. The rate on expenditure from 1 April 2023 is 20%. The rate is applied to the company’s total qualifying R&D expenditure. This can include costs such as staff salaries, subcontractor costs, software, and consumables directly used in R&D activities.
The future of R&D Tax Credits for large companies
In an effort to make the R&D Tax Credits scheme more efficient and improve compliance, a new merged scheme combining RDEC and the SME scheme will be launched in April 2024. The new scheme aims to simplify the R&D tax regime by having a single set of rules for both large companies and SMEs (with the exception of R&D intensive SMEs, which will still have a separate scheme to claim under).
How Leyton can help large companies
At Leyton UK, we help large companies claim research and development costs via RDEC. Our experts are ready to identify your eligible costs, provide industry-specific advice, and guide you through each step.
With their deep knowledge of HMRC’s regulations, they will maximise your R&D Tax Relief while maintaining strict compliance with the latest legislation. We’ll also assist in preparing your R&D additional information, preparing detailed explanations for HMRC on how your innovative work meets the criteria for relief.
For businesses facing a compliance check from HMRC, we provide an R&D enquiry support service to help substantiate their claims.
Speak to one of our experts to learn more about how we can help.
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