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The 2007 Budget trailed the introduction of changes that were confirmed
today. The rates for the enhanced R&D deductions will increase to 130% for
the large company regime and 175% for the Small and Medium Sized Enterprises
(SME) regime. The increase for large companies will take effect from April
2008 whilst the SME increase will be effective from a date to be appointed
by Treasury Order as EC approval is still outstanding. The overall value of
the payable R&D tax credit is expected to remain at the existing level of up
to 24% of the eligible spend.
The long awaited extension of the SME definition for R&D relief doubling the
criteria for qualification as an SME to 500 employees and turnover not
exceeding €100m or an annual balance sheet total not exceeding €86m was not
mentioned and is still presumably awaiting EC approval.
In order to secure EC approval to the changes affecting the SME and Vaccine
Research Relief (“VRR”) regimes the Government has been required to
introduce two restrictions, neither of which are expected to be
retrospective:
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Companies whose most recent accounts
are not produced on a going concern basis will no longer be able to
claim under either scheme which will prevent them from claiming the cash
credits currently available. Claims should however still be available
under the large company regime although this will be of limited benefit
if there are no taxable profits.
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The second change is to introduce a cap
of €7.5m on the aid that can be given under the SME and VRR schemes on a
project. This will be measured over the lifetime of the project but it
is unclear whether any expenditure beyond this cap will attract relief
under the large company regime.
Our view
The increase in the rates of relief and the proposed extension of the
relief are welcomed. However we believe that removal of the SME relief
for companies in financial difficulty strikes at the heart of the need
to incentivise UK companies to perform R&D with certainty. The
introduction of a cap for aid given by project will introduce additional
costs of compliance into the process and further add to the complexity
of the regime. |
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