UK Budget 2011: Rise in UK R&D Tax Relief - The Winners and Losers
George Osborne announced today that from 1st April 2011 the small companies Research and Development Tax Credit will rise to 200% – and from 1st April 2012 it will rise again to 225%.
In combination with a reduction in the rates of corporation tax, the revised benefits for companies performing R&D are shown below with SMEs benefits rising fractionally to an expected 25% of R&D expenditure from 1st April 2012 while large company benefit will drop at that time to 7.5%.
Additionally, from April 2012, the rule limiting a company’s payable R&D tax credit to the amount of PAYE and national insurance contributions (NICs) it pays will abolished.This will be of significant benefit to many startups who currently do not have enough NIC and PAYE to receive the R&D credit
Furthermore, the current £10,000 minimum expenditure condition will be abolished for all companies.
Changes to the SME scheme will be subject to EU approval and thus there is no confirmed effective date yet.
Changes will also be made to the rules governing the provision of relief for work done by subcontractors under the large company scheme.
HMRC have indicated that when the 200% enhanced deduction rate takes effect, the rate at which losses can surrendered will be reduced initially from 14% to 12.5% and then to a lower figure when the rate becomes 225%.
This means that the cash benefit to SMEs will remain broadly the same at 25% despite the increased deductions.
The new benefit rates are shown below:
| Benefit |
Today's 175% R&D Rate |
From 1st April 2011 200% R&D Rate |
From 1st April 2012 225% R&D Rate |
| Loss-making SME (Current cashback at 14%) | 24.5% | ||
| Loss-making SME (2011 cashback at 12.5%) | 25% | ||
| Loss-making SME (2012 cashback at assumed 10%) | 25% | ||
| SME 21% Tax-payer | 15.75% | ||
| SME 20% Tax-payer | 20% | 25% | |
| SME 28% Tax-payer | 21% | ||
| SME 26% Tax-payer (2011) | 26% | ||
| SME 25% Tax-payer (2012) |
31.25% |
Large Companies will also see a change in the R&D tax relief benefit as a result of the reduction in UK Corporation Tax
| Main Rate of Corporation Tax | Date | Benefit of 130% R&D Tax Relief Rate |
| 28% | Current | 8.4% |
| 26% | 1st April 2011 Onwards | 7.8% |
| 25% | 1st April 2012 | 7.5% |