R&D: Tax relief triples for some companies

The Government’s support of enterprise research and development has been bolstered recently with a widening of who is eligible for maximum relief and an increase in what can be claimed across small and large organisations. Now that the 31 March 2008 deadline for filing R&D claims for expenses up to 31 March 2006 has expired, efforts should be directed towards maximizing future claims in light of the new changes.

Increased rates

R&D tax relief changes announced in the 2007 Budget have now been confirmed, which could almost triple the R&D relief available to some companies. From 1 August 2008:

• The number of companies qualifying as SME sized (for tax relief purposes) has doubled.
• The rate of relief available to SME businesses has increased from 150% to 175%.

Many companies previously claiming at the 125% large company rate could benefit from enhanced R&D deductions at 175% under the new SME regime, resulting in a tax saving of 21% on qualifying expenditure compared to 7.5% under the previous large company regime – almost triple the rate. A loss making SME may elect to surrender losses and get cash back at a rate of 24.5%.

For those companies remaining in the large company band, the rates for the enhanced R&D deductions increased from 125% to 130%.