R&D Tax Relief Rises for Grant winners

R&D Tax Relief for Grant Winners Rises 42%

The significant increase in the RDEC rate will make R&D Tax Relief much more lucrative for companies that win innovation grants.

On 17 November, the government announced it was increasing the Research and Development Expenditure Credit (RDEC) from 13% to 20%. This is one of a number of changes happening to R&D Tax Relief in 2023

After tax, and taking into account the incoming 25% corporation tax rate for companies with profits over £250,000, RDEC will be worth between 15p and 16.2p for every £1 that qualifying businesses invest in eligible expenditure, depending on their corporation tax rate. 

That works out to an increase of up to 54% on the previous rate of 10.53p per £1. 

This change, which takes effect on 1 April 2023, will be especially beneficial for companies that have won an innovation grant, as innovative, grant-funded projects are generally eligible for the RDEC scheme.

To learn more about maximising your R&D Tax Relief claim as an innovation grant winner, just get in touch.

What is RDEC and am I eligible?

The Research and Development Expenditure Credit scheme is one-half of R&D Tax Relief, a UK government initiative that rewards innovative businesses with tax reductions and cash credits.

The RDEC scheme is open to companies that have received grant funding; large businesses (as defined by the company size test); SMEs who perform subcontracted R&D on behalf of large enterprises, and large groups of small companies.

The SME R&D Tax Relief scheme, the other half of R&D Tax Relief, is open to Small and Medium-sized businesses that have not received grant funding and whose work is not subsidised.

To qualify for RDEC, your project needs to have been seeking a scientific or technological advance by overcoming scientific or technological uncertainty

Suffice it to say, if you received an innovation grant for a project, it will almost certainly meet HMRC’s criteria for qualifying R&D.

Why is the government increasing RDEC?

In the Autumn Statement, Chancellor Jeremy Hunt announced that the government would be cutting SME R&D Tax Relief in response to “concerning reports” of abusive and fraudulent SME claims. 

The significant rise in RDEC is designed to partially offset the cut to SME R&D Tax Relief and ensure that the government continues to support and reward innovative development work. 

The Office for Budget Responsibility (OBR) concluded that the changes to R&D Tax Relief rates will have “no detrimental effect” on the overall level of research and development spending in the UK.

An example of the new rate

Here’s an example of how the new RDEC rate will affect your relief.

Let’s imagine you invest £500,000 in a qualifying project, £300,000 of which was funded by a Smart grant.

For argument’s sake, let’s say that all your project costs are eligible for relief.

Before 1 April 2023 After 1 April 2023
Project Cost
£500,000
£500,000
RDEC Rate
10.53%
15%
Total R&D Tax Relief
£52,650
£75,000

In this example, you would receive more than £22,000 more in R&D Tax Relief under the more generous RDEC rate.

Maximise your grant funding and R&D Tax Relief with GrantTree

R&D Tax Relief is about to become a lot more generous to grant-winning companies.

As the UK’s number one innovation grant consultancy and a leading R&D Tax Relief expert with 12 years of experience delivering successful claims, GrantTree is perfectly placed to help you maximise your windfall from these two lucrative sources of government funding.

We’ll handle your R&D Tax Relief preparation process from start to finish, saving you time while protecting your claim from HMRC’s increasingly thorough approach to compliance.

To find out more about getting expert support from GrantTree’s R&D Tax Relief experts, just get in touch.