Definition
The Research and Development Expenditure Credit, abbreviated RDEC, was the UK tax relief available to large companies and to SMEs whose projects were ineligible for the SME scheme, such as those receiving notified state aid or subsidised expenditure. It is an above-the-line credit recognised as taxable other operating income in the profit and loss account. The rate rose over time from 10% in 2013 to 13% in 2020 and 20% in 2023. From 1 April 2024, RDEC has been absorbed into the merged scheme, retaining the same 20% above-the-line credit mechanism.
How HMRC defines it
HMRC guidance on RDEC is at CIRD89700 onwards of the CIRD Manual. The legislation is in Chapter 6A of Part 3 of the Corporation Tax Act 2009. The Seven Steps for the RDEC payable credit, which survive into the merged scheme, are at CIRD89780.
Practical example
A large engineering company with £5,000,000 of qualifying R&D expenditure in its year ended 31 March 2024 claims the 20% above-the-line RDEC of £1,000,000. Post corporation tax at 25%, the net benefit is £750,000, equivalent to 15p per £1 of qualifying spend. For periods from 1 April 2024, the same mechanics apply under the merged scheme.