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Research and Development Tax Incentives

In the UK, there are two parallel systems providing enhanced relief for research and development expenditure.

The first applies to small or medium sized enterprises (SME’s) and provides an enhanced deduction of 175% of qualifying expenditure or if the company is loss-making, a repayable tax credit equal to 24.5% of qualifying expenditure.

The second applies to large enterprises and provides an enhanced tax deduction of 130% of qualifying expenditure.

There has been a relaxation of the conditions for the enhanced reliefs for SMEs. This is the removal of the requirement that any intellectual property (IP) deriving from the R&D, to which the expenditure is attributable, be owned by the company making the claim.

This is particularly helpful where for example research and development activity is sub-contracted to a UK SME company, which does not own the intellectual property rights arising. The change will apply to expenditure by an SME on qualifying R&D in an accounting period ending on or after 9 December 2009.

Also of note is the incentive around a new rate of tax to be called the “patent box”. This will apply to from April 2013 and will enter consultation stage in time for the 2011 finance Bill.

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