The recent budget changes have dramatically increased the amount of relief available to SMEs, yet almost 90% do not claim each year because they do not think they are eligible. Following an initial consultation on the R&D tax relief scheme, and acting on the recommendations of the Dyson review, Chancellor George Osborne has announced a package of improvements that will strengthen the scheme. The main headline is that, as of 1st April 2011, tax relief on R&D expenditure for SMEs will be raised from 175% to 200%. In real terms, this means that claim sizes will increase by up to 33%, bringing the average SME claim size to £53,000 a year.
This improvement in the scheme will have an immediate effect for companies in the coming year. However, the news keeps getting better as the government also announced its intention to increase the rate even further, to 225%, from April 2012. This will increase the average SME claim size further to £65,000.
However, it is not just the financial impact of the scheme which has been strengthened – the scope has been widened too. By removing the £10k minimum spend requirement, the Chancellor has effectively opened the programme to smaller companies with much lower expenditures on R&D. Also, by getting rid of the PAYE/NIC cap on the size of the payable cash credit, he has helped companies with large R&D expenditures (perhaps on subcontractors and materials) but low numbers of staff – which had previously been restricted by low payroll costs. These changes will go a long way to encouraging more small companies to apply.
It is acknowledged that many eligible companies simply do not claim because they believe themselves to be in a low technology sector. A simple test is if you:
- Design and manufacture products or tools, including software; or
- Are involved in trying to resolve difficult technical problems in order to make product improvements;
then you are likely to have eligibility. It is always better to check.
These changes represent a welcome and significant U-turn in the policy of the Conservatives, who, only a year ago, were considering dismantling the scheme.
Posted on Tuesday, 29th March, 2011