R&D tax credit expanded

Budget 2006 makes innovation credit available to more firms

Chancellor Gordon Brown has extended the research and development (R&D) tax credit to apply to more companies as part of a commitment to fostering UK innovation.

According to the Budget the size of firms eligible for the credit is to rise from 250 to 500 employees. The company turnover limit will also be doubled.

'The hope is that high growth-rate, medium-sized companies will be able to exploit the better conditions of the scheme,' said Tom Wills-Sandford, deputy director general of supplier trade group Intellect.

Implementation of the R&D tax credit for IT-related developments has been criticised in the past for inconsistency because tax inspectors do not have sufficient understanding of software development. Plans to provide specialist training are under consideration by the Treasury, and the development of specialist centres for dealing with smaller firms' R&D tax credit claims are expected by the summer.

'We expect we will be delivering training to tax inspectors by early autumn which will improve their understanding of software claims,' said Wills-Sandford.

If the credit is not consistently applied it ends up costing firms more than it saves them, says Institute of Directors senior policy advisor Jim Norton.

'Lack of clarity makes this worse than useless because small companies in particular end up tied up in bureaurcratic knots,' he said.

Andrew Smith, chief economist at consultancy KPMG, said businesses will take encouragement from the Chancellor’s repeated references to the need for general economic success, and to enterprise and prosperity.

'The specific measures are helpful with enhanced incentives to invest in smaller companies and for businesses to invest in R&D,' he said.