2011 Budget Updates

SME Scheme

Legislation will be introduced in Finance Bill 2011 to increase the deduction for qualifying R&D expenditure from 175% to 200% when computing the tax bill for SMEs. For example, a SME with £100,000 in qualifying R&D expenditure can claim £200,000 (£100k x 200%) as a deductible expense in the tax computation. Subject to State aid approval this change will take effect for R&D expenditure incurred on or after 1 April 2011.

Legislation will also be introduced in Finance Bill 2012 to increase the additional deduction by a further 25% from 1 April 2012. For example a SME with £100,000 in qualifying R&D expenditure can claim £225,000 (£100k x 225%) as a deductible expense in the tax computation.

Other Proposed Revisions to the R&D Tax Relief Programme include:

  • Scrapping the rule limiting a SME company’s payable R&D tax credit to the amount of PAYE and national insurance contributions (NICs) it pays;
  • Scrapping the £10,000 minimum expenditure condition for all companies; and,
  • Changes to allow for the provision of relief for work done by subcontractors under the large company scheme.