SME R&D Tax Scheme Extension Introduced

UK small businesses can claim more tax relief on their research and development (R&D) costs following the expansion of the Government’s SME R&D tax relief scheme on 1st August.

The SME R&D tax relief scheme has been extended so that SMEs can claim 175% relief on their qualifying expenditure on R&D for amounts incurred after 1st August – compared with 150% for expenses incurred before this date.

The scheme has also been extended to include firms with up to 500 employees, and either turnover not exceeding €100 million or an annual balance sheet not exceeding €86 million. It was previously only available to firms with fewer than 250 staff.

Small firms in any sector can claim the relief as long as they are seeking to achieve an advance in science or technology. The tax relief is not available to unincorporated businesses or partnerships.

The Government announced the extension in the 2007 Budget and it was due to be introduced in April this year. However, it was delayed until it received European Commission (EC) approval.

“It has taken longer than expected to reach this point, but now that improvements to the scheme have occurred, they will enable businesses to proceed with greater certainty over the benefits they can expect as a result of investing in R&D,”

said business advisory firm Deloitte’s global head of R&D tax David Cobb.

Cobb added that while the legislative changes were incorporated into the Finance Act (2007), there will be no retrospective element to the implementation.

“Those businesses with an accounting period straddling 1 August will need to think about splitting their costs accordingly to ensure that they claim the correct rate of relief.”

While it has approved the extended tax relief scheme, the EC has introduced two restrictions. The first prevents businesses which are not going concerns (not operational) from claiming the SME relief and the second imposes a lifetime cap of €7.5 million on the additional benefit provided by the SME scheme after 1st August.

“The benefit of the positive changes should significantly outweigh the impact of the two restrictions imposed,” said Cobb.

To access an HM Revenue & Customs guide to ‘R&D tax relief for SMEs’, visit the HMRC website

More information on R&D tax relief, visit the Taxes, returns and payroll section of the Business Link website

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