The Finance Bill confirms that the Research and Development Expenditure Credit will increase from 12 to 13 percent.
Following the recent Budget, the Finance Bill increases the rate of the Research and Development Expenditure Credit (RDEC) to 13 percent from 12 percent for expenditure incurred on or after 1 April 2020. The RDEC is subject to corporation tax so companies who claim the RDEC will receive a net of tax benefit of 10.53 percent, as compared with 9.72 percent for expenditure incurred prior to this change.
The change will impact large companies claiming Research and Development (R&D) tax incentives which, for the purposes of the RDEC, is an entity with more than 500 full time equivalent employees or one that fails two financial tests, namely having more than 100 million euros turnover or more than 86 million euros gross assets.
Small and medium sized companies that claim under the RDEC because they undertake subsidised or subcontracted out R&D, will also benefit from the change in the RDEC rate. It is forecast that the measure will cost the Exchequer £310 million by 2024-5.
This is a very welcome boost and incentive for companies undertaking R&D in the UK that claim the incentives in the form of the RDEC. This will provide additional financial support to businesses that are embracing innovation to tackle the many challenges facing them, and provide additional funds to reinvest in innovation.
As companies face unprecedented pressures on cashflow in the months ahead, it is vital that companies entitled to the RDEC that submit claims can access the financial support as soon as possible, to help them work through the difficult period ahead.
© 2020 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.