The government is continuing its support of innovative businesses and is increasing the R&D tax credit for SMEs from 125% to 130% from 1 April 2015. It means that for profitable companies, the net cost of research and development will be £54 for every £100 spent.
Loss making companies also benefit. Since 1 April 2014 they have been able to claim a 14.5% payable tax credit from the government even if they have never paid any corporation tax. So their net cost of R&D is £66.65 for every £100 spent.
These tax breaks mean that R&D tax credits are becoming increasingly valuable for SMEs in their early development phases.
Certain companies are not allowed to claim under the SME scheme because they are either subcontracting for other companies or receive grants. However, some of them may be able to claim under the large company scheme.
Accordingly, the increase in the relevant rate of credit from 10% (8% net) to 11% (8.8% net) from 1 April 2015 will be welcome news.
R&D tax reliefs are making the UK one of the best places for innovative companies.
We hope that future developments from HMRC will make it easier for smaller companies and start ups to obtain relief, particularly in the early development stages when losses are often present.