Relaxation of R & D tax rules

This may be of interest to those who carry out R&D as part of a project for a larger company who retains the IP.

The SME definition is also larger than the norm to be eligible for the SME scheme:

The SME Scheme is open to organisations with fewer than 500 employees, an annual turnover of less than 100 million euros and a balance sheet not exceeding 86 million euros. Annual spend on R&D must be a minimum of £10,000.

For further details please read the information below.

The rules for claiming additional tax relief on research and development (R&D) are due to be relaxed, paving the way for more small businesses to take advantage of financial support from the Government.

Small and medium-sized enterprises (SMEs) carrying out research and development (R&D) will be able to claim the additional relief on their activities, even if they don’t own the intellectual property that will result from the R&D.

The new arrangement for claiming the relief, the removal of the intellectual property condition, is due to become law this autumn as part of the Government’s finance bill. SMEs will be able to apply the new rule to any expenditure on R&D in an accounting period ending on or after 9 December 2009.

The relaxation of the rule will particularly benefit sub-contractors carrying out research for larger companies. Currently, to be eligible for the additional tax relief on R&D, SMEs need to own any intellectual property created by their R&D activities. So if an SME carries out research for a large company which will own the intellectual property arising from the expenditure, for example any patent, the SME has, up until now, not been able to receive the additional tax relief. And the large company has also been excluded from applying for the additional tax relief as it has contracted out its research. The new rules will guarantee that at least one partner in the relationship can apply for additional tax relief.

Designed to promote investment in scientific and technical innovation, R&D tax relief provides companies with an extra tax allowance to reduce their tax bill. The SME Scheme is open to organisations with fewer than 500 employees, an annual turnover of less than 100 million euros and a balance sheet not exceeding 86 million euros. Annual spend on R&D must be a minimum of £10,000.

Through a public consultation later this year, the Government will ask UK businesses for their views on the taxation of intellectual property, the support R&D tax credits provide for innovation and the proposals of the Dyson review, a report produced by leading design engineer and entrepreneur James Dyson, on how to make Britain a leading high tech exporter in Europe.