R&D relief rules relaxed for SMEs

SMALL and medium-sized enterprises that carry out research and development will find it easier to claim additional tax relief, thanks to a relaxation in the rules for claiming R&D tax credits, HMRC has announced.

Companies will now 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.

R&D tax relief is designed to promote investment in scientific and technical innovation, providing 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 €100m and a balance sheet not exceeding €86 million. Annual spend on R&D must be a minimum of �10,000, the department said.

The change to the rule – the removal of the intellectual property condition – became law in the Finance Act 2010. And SMEs will now be able to apply the new rule to any expenditure on R&D in an accounting period ending on or after December 9, 2009.

This will particularly benefit sub-contractors carrying out research for larger companies.

Previously, to be eligible for the additional tax relief on R&D, SMEs had to own any intellectual property created by their R&D activities. So, if an SME carried out research for a large company that would own any intellectual property arising from the expenditure (such as a patent), the SME was not able to receive the additional tax relief. And the large company was excluded from applying for the additional tax relief as it had contracted out its research. Now at least one partner in the relationship can apply for additional tax relief.

INFORMATION: More at www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm