Budget 2011: The R&D Tax Credits impact


As we told a number of our clients, we didn’t expect R&D Tax Credits to be impacted adversely in the new Budget. The government had previously stated that science and technology would be protected from the budget cuts, and R&D Tax Credits fit within this area.

Nevertheless, it is a very good surprise to see this confirmed  and even exceeded in the new budget. Not only are R&D Tax Credits not being cut, but they are being enhanced. R&D expenses from April 2011 will receive a 100% enhancement (as opposed to the previous 75%), and from April 2012, the enhancement will further climb to 125%! This is great news for innovative startups.

At the same time, for unprofitable companies, the rate at which the expense can be converted into a tax credit is being changed so that the increase will not seem so substantial (there are EU rules that cap the cash subsidies that governments can give to companies), but there will be one very important development in April 2012 – the removal of the PAYE/NIC cap. This is great news from the extremely numerous tech startups who spend money but do not employ people directly (for example, if they employ contractors or pay their directors in such a way as to not incur any PAYE/NIC). From April 2012, they will be able to claim money back even without having paid any tax.

Of course, April 2012 feels a long, long way away if you’re running such a startup right now, but we can only applaud the fact that the government is putting in real changes that will make a difference to startups in the near future.

If you are curious about R&D Tax Credits, Innovation Grants and Open Culture






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