Ireland 
USA R&D expenditure credit (RDEC) explained
For a large company relief is given as an ‘above the line’ expenditure credit that is calculated as a percentage of the qualifying expenditure for the relevant accounting period. The R&D expenditure credit (RDEC) is treated as income, positively impacting EBITDA and increasing a company’s taxable profits. RDEC is claimable by large companies, or SMEs undertaking subsidised R&D and projects contracted to them by large companies.
Large company classification
A company is generally classified as large if one or more of the criteria below are satisfied (at a group level):
- Total staff of more than 500 people
- Turnover of greater than €100 million or balance sheet assets greater than €86 million
What costs qualify for R&D relief?
- Staffing costs (including gross salaries, wages, overtime pay, and cash bonuses), employer national insurance contributions, and employer pension contributions
- Costs of externally provided workers (EPWs), which are the staff costs paid to an external agency for staff who are directly and actively engaged in the R&D project. EPWs must carry out R&D activities under the supervision, direction, or control of the claiming company and the work should not constitute the contracting out of R&D activities. Only 65% of the total EPW costs can qualify for R&D relief, assuming the staff provider is unconnected.
- Consumables, which are materials that are consumed or transformed in the R&D process. These include utilities such as water, fuel, and power
- Software, including the cost of software licences utilised in the R&D activities
- For accounting periods beginning on or after 1 April 2023, data licences and cloud computing utilised in the R&D activities
How are benefits calculated?
From 1 April 2023 the RDEC rate and corporation tax rates are changing and therefore the net benefit receivable by companies will change.
| RDEC Rate | Corporation Tax Rate |
Before 1 April 2023 | 13% | 19% |
After 1 April 2023 | 20% | 19% - 25% |
From 1 April 2023 companies with profits lower than £250,000 can claim Marginal Relief which will result in a marginal rate of tax between 19% and 25%.
Worked example
Before 1 April 2023 | After 1 April 2023 (companies with projects greater than £250,000) | ||
Qualifying R&D expenditure | = | £1,000,000 | £1,000,000 |
RDEC | = = | 13% x £1,000,000 £130,000 | 20% x £1,000,000 £200,000 |
The RDEC is treated as income and is therefore taxable. | |||
CT paid on RDEC | = = = | RDEC x CT Rate £130,000 x 19% £24,700 | RDEC x CT Rate 200,000 x 25% £50,000 |
Net benefit of RDEC | = = = | RDEC - RDEC CT liability £130,000 - £24,700 £105,300 | RDEC – RDEC CT liability 200,000 - £50,000 £150,000 |
RDEC net benefit | = | 10.53% of initial qualifying R&D expenditure | 15% of initial qualifying R&D expenditure |