Autumn Budget 2017 – An Increase in R&D Relief for Large Companies

Many people were concerned that leaving Europe might have a detrimental effect on the generous tax reliefs available for expenditure on qualifying Research and Development.  In fact, the enhanced relief for Small and Medium sized Enterprises has been retained at 230% of qualifying expenditure and in today’s Budget the Chancellor announced an increase in the Research and Development Expenditure Credit which applies to large companies.

The RDEC, which will increase from 11% to 12% for expenditure on or after 1 January 2018, is calculated in a completely different way to relief under the SME scheme.   It operates by bringing in a notional receipt (sometimes described as an above the line credit) in calculating taxable profits, but this credit is then allowed in full as a deduction against tax payable.  In the event that there is no tax payable for the year, it can either be carried forward or repaid net of tax.

Although the RDEC principally applies to large companies, it can also be claimed by small or medium companies if they are excluded from claiming under the SME scheme. This might be because expenditure on a particular project has been subsidised in some way or because they have exceeded the maximum SME project expenditure limit of €7.5 million.