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Step-by-step Guide

How do I enter a Research and Development Expenditure Credit (RDEC) on my CT600?

Article ID: 2621
Last updated: 03 Apr, 2023

The research and development expenditure credit (RDEC) replaced the large company scheme in April 2016 to continue to encourage investment in R&D. A large company can claim a taxable credit on qualifying R&D expenditure, up to 2 years after the end of the accounting period it relates to.  In addition, small and medium sized enterprises (SME's) can also claim the RDEC if they have been subcontracted to provide R&D work by a large company or if they have received a grant for their R&D project. The resulting credit can be used to reduce the current corporation tax liability or, if no current liability exists, can be used against other outstanding tax or VAT liabilities with any remaining credit being repayable to the company.

If you are making a claim for research and development (R&D) enhanced expenditure for small and medium sized enterprises (SME's) and possibly a resulting credit, please read our knowledgebase article on How do I enter R&D enhanced expenditure (for SMEs) on my CT600?

For CT600 returns filed after 6th April 2021, HMRC require entries for RDEC claims to be entered within Research and Development supplementary pages. The entries can be made in SimpleStep or HMRC Forms mode as follows:

CT600 (version 3) from 2015 onwards 

Whether you are using SimpleStep (Supplementary pages > Research and Development) or HMRC Forms mode (Research and Development), TaxCalc will guide you through HMRC's seven step process and provide wizards to help you.

Pre-step 1 restriction

Complete this section if you have an amount of Step 2 restriction (notional tax) brought forward from a previous accounting period or if you wish to include an amount of RDEC surrendered from other group companies.

If you have a previous TaxCalc return, box L5 will be populated with the value in box L140 from the previous year.

Step 1

R&D expenditure on which RDEC is claimed in this accounting period can be entered using the wizard to select whether the expenditure has been made by a large company or for specific work made by an SME and for what period.

The Rate % is determined by the period in which the expenditure was incurred and the RDEC claim for this period will complete automatically.

Step 3 amounts from a previous accounting period is referring to any restriction to the previous year credit, due to the PAYE thresholds. This amount, unlike the notional tax restriction, can be used within the current year RDEC caculation.

The total credit is used to discharge any corporation tax liability for the accounting period. The liability is not reduced by the credit but is settled by it like any other payment made by the company. IN other words, you will not see a change to the calculated tax liability for the year.

Step 2

If you have RDEC remaining after step 1, the amount is reduced by applying a notional tax charge to it. The notional tax charge must be based on the main rate of Corporation Tax for the accounting period. This step restricts the potential payable element and ensures that loss makers receive the same net benefit as profit makers (the credit being taxable). This ensures that the total cash benefit for all claimants is equal to the expenditure credit, net of tax at the main rate of corporation tax. The ‘notional’ tax retained under this step is carried forward and available to reduce the corporation tax liability of a later period of the company. Credit amounts brought forward from a previous period are not liable to a further notional tax deduction.

Step 3

This step further restricts any payable element to the company’s total expenditure on R&D workers’ PAYE and NIC for the accounting period. The amount which exceeds the cap is carried forward and added to any expenditure credit for the following accounting period.

Step 4

Any amount remaining after step 3 is used to discharge any outstanding corporation tax liabilities (due but not settled) of the company for any other accounting periods.

Step 5

If the company is a member of a group, it may surrender the whole or any part remaining after step 4 to any other group member.

Step 6

Any amount remaining after step 5 is used to discharge any other liability of the company to pay a sum to the Commissioners, for example VAT or liabilities under any contract settlement.

Step 7

The final amount remaining is payable to the company provided that the company is a going concern. L123 should only be completed if the amount is not payable under the going concern rules (s104S (2)(b) CTA 2009.

The resulting payable amount will also be automatically populated in box 880 of the CT600.

The RDEC is an ‘above the line’ credit, which means it is taxable and will therefore need to be adjusted for in the accounts. The gross credit can be accounted for either as income or as a deduction against R&D expenditure.

An example of how to account for the credit:

Dr Corporation Tax (B/S) (amount to be offset against existing tax charge or to be paid by HMRC)
Dr Corporation tax charge (P/L) (tax charge on the gross amount)
Cr Other income (P/L)  (gross amount)

More about Research and development expenditure credit (RDEC) can be found in HMRC’s guidance, Claim Research and Development (R&D) expenditure credit.

Rates:

Date of qualifying expenditure Tax Credit %
01/04/2013 - 31/03/2015 10%
01/04/2015 - 31/12/2017 11%
01/01/2014 - 31/03/2020 12%
01/04/2020 - 31/03/2023 13%
01/04/2023 onwards 20% 

Article ID: 2621
Last updated: 03 Apr, 2023
Revision: 13
Views: 5146
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Also listed in
folder Tax Return Production -> CT600 Corporation Tax Return