The seven-step method of calculating the RDEC credit offsets any tax owed to HMRC before paying the net credit.
- Offset against any corporation tax liability
The gross RDEC at 13% is offset against the corporation tax liability for the same period as the R&D tax claim.
Company A
- is treated under RDEC
- has a tax loss of £100,000
- Has qualifying R&D costs of £100,000
The company includes £13,000 (£100,000 x 13%) as income.
- Only the net amount of the relief is payable in cash
If the amount remaining after Step 1 exceeds the net value of credit, the balance is withheld and carried forward for you to use in later periods.
RDEC amount (Step 1) £13,000
Less Step 2 amount (£2,470)
Net value £10,530
- Cap on PAYE/NIC for staff
There is a cap based on PAYE and NIC relating to employees included in the R&D tax claim. Amounts in excess of the cap can be carried forward to use in later periods.
Company A has PAYE/NIC of £25,000. As the net value does not exceed the PAYE/NIC cap, none of the credit is restricted.
- Offset corporation tax liability for other accounting periods
Before the relief is paid in a cash payment, HMRC may offset the payment against any outstanding corporation tax owed for any other accounting periods.
There is no outstanding corporation tax.
- Group relief
You can surrender up to the credit amount in addition to the amount withheld in step 2 to a group company to offset against their tax liability. This is optional.
There are no group companies.
- Offset against any other liabilities of your company
Any remaining amount at this step will be offset by HMRC against other outstanding taxes - PAYE and VAT.
No outstanding liabilities for Company A.
- Cash payment payable to company
Remaining amount can be paid to the claimant company.
Company A received a RDEC credit of £10,530.
The £2,470 from step 2 is carried forwards against future corporation tax liabilities (not as income).
