R&D tax credits - new improved product?


by David Halstead of Deloitte

In July last year, the Government published a consultation paper seeking views on how to improve the definition of qualifying R&D and associated costs to better support UK R&D activity.

The December 2003 Pre Budget Report contained the Government's response to the suggestions made by the 76 respondents to the original consultation.

New guidelines will replace those that many companies have found confusing to use and that may have led to the full benefit not being claimed by deserving companies. The new guidelines are clearer and contain more objective criteria for project qualification. Out goes the need for 'innovation' and 'novelty' - companies will now need to show an objective 'advance in technology or science' and software R&D is treated equally under this definition.

Companies have long complained that eligible costs do not represent the real cost of performing R&D. Currently only staffing costs, consumable stores and certain subcontract payments qualify. The definition of 'consumable stores' is to be changed to include all materials consumed or transformed in the R&D process, including water and fuel and purchased software used directly and actively in the R&D. As part of an ongoing process, the Inland Revenue will continue to consult on the inclusion of further direct costs.

The changes proposed are a step in the right direction and Deloitte will be working with the Government in the lead up to the 2004 Budget, when the final legislation is announced. We urge technology companies to keep abreast of these changes which aim to make it easier for companies to claim the tax and cash benefits available.

For more detailed information, please contact John Moore or Richard Lewis.

deloitte logoDavid Halstead is a Partner at Deloitte in Cambridge. Contact him by email dhalstead@deloitte.co.uk

6 January 2004

This article first appeared in Tangent, a fortnightly column offering business advice and comment


The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

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