Small and medium-sized businesses stand to benefit to the tune of GBP180mn as a result of the long-awaited approval by the European Commission of improvements to the UK’s Small and Medium sized Enterprise (SME) Research and Development Tax Relief scheme, reports business advisory firm Deloitte.
The improvements to the scheme are expected to be implemented from 1 August 2008, and see a doubling of the criteria for qualification as an SME from having less than 250 to less than 500 employees and either turnover not exceeding EUR100mn or an annual balance sheet total not exceeding EUR86mn.
The rate of relief for these newly defined SME companies will also increase from an additional 50% to an additional 75% of the eligible expenditure for amounts incurred on or after 1 August 2008.
David Cobb, global head of R&D tax at Deloitte, commented: “It has taken longer than expected to reach this point, but now that approval of the improvements to the scheme have occurred, they will enable companies to proceed with greater certainty over the benefits they can expect as a result of investing in R&D.”
Cobb also noted: “It is disappointing that although the legislative changes were incorporated into the Finance Act 2007, there will be no retrospective element from the implementation.
He further observed that: “With the improvements expected to be implemented on 1 August 2008, those companies which have an accounting period straddling that date will need to think about splitting their costs accordingly to ensure that they claim the correct rate of relief. Companies will also need to review the size criteria of their company for the periods pre and post 1 August 2008 in order to clarify which R&D tax regime they should use to calculate their claim, bearing in mind the differences in qualifying cost base and the additional rules relevant to SME claims.”
The price paid for EC acceptance of these changes was the introduction of two restrictions to the SME scheme. The first prevents companies whose accounts are not prepared on a going concern basis from claiming the SME relief and the second imposes a lifetime cap of EUR7.5mn on the additional benefit provided by the SME scheme after 1 August 2008.
In Cobb’s opinion: “The benefit of the positive changes should significantly outweigh the impact of the two restrictions imposed.”
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