Good news on R&D tax credits – especially for SMEs

10 June 2011: The government’s latest consultation document on R&D tax credits published today shows a welcome pragmatic approach to making this valuable tax break work for companies, according to PKF Accountants & business advisers.

Denise Roberts, tax partner at PKF and an R&D specialist, explains: “This document shows that the government is taking a serious interest in encouraging research and development activity by making it easier for companies to access the relief.”

The Chancellor announced significant enhancements to the rate of R&D tax credit in the 2011 Budget but the administrative problems of identifying what work and costs qualify for the relief has limited take-up rates.

Denise continues: “The announcement that the rules on the cost of using externally provided workers for R&D activity will be relaxed is very welcome, as is the fact that more guidance will be published on the elements of initial production costs that can qualify. But perhaps the best news is for SMEs.”

“Not only is it confirmed that the minimum R&D spend rule (currently £10,000 a year) will be removed and that the cap on tax credits payable to loss making SMEs is to go, but there is to be a form of advance clearance system introduced. If the government’s suggested system of ‘voluntary advance assurances’ can be made to work without too much of an administrative burden to companies; start-ups and fledgling businesses will be able to get some certainty that the R&D work they are planning will qualify for the relief. Getting this relief is often a make or break issue for new companies.”

“Larger companies will also be relieved that the tone of the document underlines the government’s on-going commitment to supporting their R&D work. The business case for making the relief an ‘above the line’ credit for large companies may not be proven, but the fact that the government is actively considering such a change shows that it is determined to make the relief work for large businesses.”

Ends

For further information, please contact:

Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com

Jane Murray, 020 7065 0135, jane.murray@uk.pkf.com

Notes to Editors:
Up until April 2011, tax relief was available to small and medium-sized enterprises (SMEs) at a rate of 175% for qualifying expenditure incurred on research & development (R&D) projects. Subject to EU state aid approval, the rate of relief available to SMEs on qualifying expenditure will increase to 200% for expenditure incurred from 1 April 2011. From 1 April 2012, again subject to EU state aid approval, the total rate of relief will increase to 225%. The rate of deduction for larger companies remains at 130% for the same type of expenditure. However, the rate of relief available to SMEs for expenditure on vaccines research will be reduced from 140% to 120% from 1 April 2011, and enhanced relief will no longer be available to SMEs from 1 April 2012.

PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk

PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.

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