By Max Clarke

In his inaugural March budget, George Osbourne announced positive changes to the Research & Development Tax Relief schemes, notably increasing substantially the eligible R&D spend enhancement from the current 75% to 100% and again in 2012 to 125% for technology based small businesses.

R&D tax credits provide the financial incentive for businesses to increase their spend on research and development, which in turn will increase innovation and stimulate economic growth in high technology industries. Before the rise, the UK’s businesses claimed back nearly £1 billion in tax credits. This figure is set to increase dramatically, boosting businesses capital, allowing them to expand.

David Marshall Director at specialist R&D tax advice firm Alma Consulting Group comments: “This is a substantive improvement to the scheme. Cash strapped SMEs in start- up mode rely on investors to help them fund their innovative product development, often while staff levels and hence payroll costs are kept to a minimum.

“The PAYE & NI cap has punished these companies for being prudent. I’m delighted that this cap has been removed, reflecting a positive approach from this government in developing intellectual property for UK Plc — these changes are a boon to SME businesses developing technology”.

Somewhat surprisingly, the Chancellor had some good news for Large Companies too; the Chancellor stated that he would be removing the restriction from Large Companies in claiming costs for subcontracting activities.

David enthuses: “Large companies can now support their strategic R&D subcontractors by treating this expenditure on a post-tax basis, essentially reducing the cost of the subcontracted work. This will no doubt increase work awarded to these suppliers supporting the broader business community”.