HMRC have announced that legislation will be introduced in Finance Bill 2011 to increase the additional deduction for qualifying R&D expenditure given to SMEs in computing business profits or losses for corporation tax purposes. This follows the announcement given in the 2011 budget speech. The intention of these incentives is to improve the overall competitiveness of UKplc by using the tax system of reliefs for R&D carried out by companies. This additional money will increase the incentive for SMEs to carry out more R&D, hence increasing the value of R&D and innovation in the UK. This is great news as the deduction allowed will increase from 75% to 100%, that is a total of 200% of qualifying costs become eligible for the relief and will have effect for expenditure incurred on or after 1 April 2011. Looking ahead the same announcement said that it was intended that legislation will be introduced in Finance Bill 2012 to increase the additional deduction by a further 25 per cent giving a total deduction of 225 per cent and will apply to expenditure incurred from 1 April 2012. There is also subject to consultation, the intention to simplify the rules of R&D tax relief for SMEs. The simplifications to the scheme, which will also apply to expenditure from 1 April 2012 are… the rule limiting a SME company’s payable R&D tax credit to the amount of PAYE and national insurance contributions (NICs) it pays will abolished; the £10,000 minimum expenditure condition will be abolished for all companies; and, changes will also be made to the rules governing the provision of relief for work done by subcontractors under the large company scheme. HMRC assesses the benefits of the scheme and these changes based on the around 6,500 SME companies who claim R&D tax relief each year. These companies will benefit from the improved incentive to carry out additional R&D and the simplification of the rules. These are straightforward changes with minimal administrative impact on companies claiming. Are you getting your share of this free incentive money? Contact us today to find out.     Reference: www.hmrc.gov.uk/budget2011/tiin6157.pdf...