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Finance Act 2012

Background Note

9.Additional tax relief for expenditure on R&D was introduced in 2000 for SME companies and in 2002 for all other companies. Further relief - VRR - was introduced in 2003 for expenditure into vaccines and medicines for strains of TB, malaria and Aids/HIV prevalent in the developing world.

10.A consultation document "Corporate Tax reform:  delivering a more competitive system" was published on 29 November 2010 on the HM Treasury website and included consultation on the R&D tax relief.  A response document, "Research and Development Tax Credits:  response and further consultation" was published on 10 June 2011, and a further response on 6 December, both on the HM Treasury website.

11.Budget 2011 announced increases to the rate of SME R&D relief, together with abolition of the PAYE/ NIC limit and £10,000 pa minimum expenditure.

12.The SME R&D Relief currently gives an additional deduction equal to 100 per cent of the qualifying expenditure. This, combined with the normal deduction for such expenditure, gives a total of 200 per cent.

13.Losses arising from expenditure on R&D can be surrendered by a loss making company in return for a payment at a rate of 12.5 per cent. giving relief of 25 per cent on the original expenditure.

14.The rate of the additional deduction is to be increased to 125 per cent for expenditure incurred on or after 1 April 2012. The rate at which losses can be surrendered will be reduced to 11 per cent, giving relief overall worth 24.75 per cent of the R&D expenditure. The reduction is necessary to keep the value of the relief within the 25 per cent. threshold set  out in EU State aid rules.

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