R&D Tax Credits and Research and Development Expenditure Credit (RDEC)The way in which to account for research and development tax credits differs depending on the size of your organisation and the nature of the project being carried out. This is due to the difference in benefits offered by the schemes designed to help SMEs (via the SME R&D Relief) and RDEC which was introduced to help large companies as well as those subcontracted to carry out R&D work for large companies (both large and SMEs). It is likely that you could be eligible to claim under both schemes as long as the R&D credit criteria are met. For further information regarding the two, please refer our Guide to R&D Tax Credits. This can, unfortunately, be a complicated process which is why CapEx Associates provide a dedicated service to assist businesses in their R&D tax credit application and unlock further potential capital.
How to Account for R&D ReliefWith a time limit of two years from the tax year to recoup R&D costs, a retrospective claim under both schemes, and a one-year reporting interval for company accounts, your award may likely be received before or after these documents are prepared. Therefore we have set out some guidelines to help you in producing your company accounts. Main Differences to Note Between R&D Tax Credits and RDEC:
- R&D credits are recognised below the line in accounts, meaning that they are non-taxable and only affect the tax you pay. This is to be presented in your income statement or profit and loss account as either a corporation tax reduction or credit.
- Research and Development Expenditure Credit (RDEC) is accounted for as above the line, taxable income in comparison and can increase your profit before tax.
Accounting for SME R&D Tax CreditsDid you know that if your claim is…
- Received before finalising your accounts – you can simply include the amount you are awarded into your cooperation tax.
- Received after your accounts are finalised – complete a prior year adjustment for the year that the claim was made.