UK government publishes new tax definition of research and development

March 8, 2004

London, 5 March 2004

Trade and Industry Secretary today published new guidelines on the definition of research and development (R&D) for tax purposes.

The simplified guidelines, which should come into force in April, clear up grey areas in the original definition to make the criteria easier to understand for business. This takes forward the announcement made by the Chancellor in the Pre-Budget Report in December 2003 and follows extensive consultation by DTI, HM Treasury and the Inland Revenue.

They also emphasise that R&D tax credits apply to development work just as much as research, and to new or improved processes as well as just new products.

Patricia Hewitt said: "We want the UK to be a key hub in the global knowledge economy, and to achieve this we need companies that can turn research and development into profit, jobs and growth. R&D tax credits help our most innovative businesses succeed and create wealth.

"These new guidelines will make it simpler for businesses to interpret the tax credits and receive as much support as possible to carry out the R&D they do."

Business reactions to the new guidelines have been positive. John Cridland, CBI Deputy Director-General, said:

"Government's continued support for research and development is extremely welcome. The CBI has been pressing for simplification of the R&D tax credit for some time and is pleased with these changes."

Since the introduction of R&D Tax Credits for small companies in 2000 and large companies in 2002, they have provided around £600m per year of Government support for businesses carrying out research and development.

Notes to Editors

1. R&D Tax Credits were introduced for SMEs in 2000 and for large companies in 2002. Each £1 spent on qualifying R&D, which previously would have been 100% tax deductible, is now deductible at a rate of 125% for large companies and 150% for SMEs. This is a significant driver for innovation by companies undertaking R&D in the UK.

2. The new guidelines will become the UK definition of R&D for tax purposes by means of a Statutory Instrument shortly to be laid before Parliament. The guidelines and further information are available online at www.dti.gov.uk/support/rd_guidelines.htm

3. The Government also gives grants for research and development to companies who want to develop prototypes or innovative products and processes. Information on this and other grants available to businesses is available at www.businesslink.gov.uk or by calling Businesslink on 0845 600 9 006.

Department of Trade and Industry, Press Release No. P/2004/094
Item source: http://www.gnn.gov.uk/gnn/national.nsf/T I/918822FB50BB93CD80256E4E004E9B1B?opend ocument

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