R&D Expenditure Credit (RDEC) – rate increase
As widely anticipated, the RDEC rate will increase from 12% to 13% from 1 April 2020. This is one of a number of measures aimed at achieving the Government objective of increasing R&D in the UK to 2.4% of GDP by 2027.
The RDEC is particularly attractive to business because it enhances operating profits and is payable to a company irrespective of its tax position. The rate increase suggests it will be here for the long term enabling qualifying companies to plan for future R&D spend.
As a reminder, the credit is brought into account ‘above the line’ and reflected in the operating profits of the company, similar to a grant. The credit itself is taxable and so taking a 19% corporation tax rate into account, the net cash benefit of the credit is 10.5% from 1 April 2020.