Chancellor Rishi Sunak has increased tax relief for companies that carry out qualifying research and development (R&D) in his Budget today.
The measure increases the rate of the R&D expenditure credit from 12 per cent to 13 per cent.
The expenditure credit is a standalone credit that is brought into account as a receipt in calculating trading profits.
SME R&D tax relief allows companies to deduct an extra 130 per cent of their qualifying costs from their yearly profit, as well as the normal 100 per cent deduction. It also allows businesses to claim a tax credit if the company is loss making, worth up to 14.5 per cent of the surrenderable loss.
An increase in the R&D expenditure credit to 13 per cent means that large companies can claim more support for their R&D, increasing the incentive to undertake it.
Melissa Geiger, head of international tax and tax policy at KPMG, said: “The Chancellor set out plans to unleash the power of business particularly by investing substantially in ideas and R&D.”
However, in the policy document the Treasury said the measure is expected to have a “negligible impact on administrative burdens for 7,000 businesses.” One-off costs include familiarisation with the changes and updating systems to reflect the increased rate.
The measure, which is expected to affect 7,000 firms, will cost £1.2m.
The Institute of Directors also welcomed the Chancellor’s R&D credit increase. Responding to Sunak’s Budget, the IoD said: “Efforts to ramp up R&D will be crucial to keep businesses reset for the long-term challenges ahead.”
Dr. Jason Kingdon, Executive Chairman of Blue Prism said: “Emerging technologies such as AI, machine learning and Robotic Process Automation ‘RPA’ are still in a phase of rapid growth, so this scale of investment will help the UK tech sector continue to flourish and further strengthen the UK’s status as a leading global hub for innovation and disruption.”