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Budget 2011: R&D tax credits

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George Osborne announced changes to research and development (R&D) tax credits. Here’s what he announced.

The short version:

The R&D tax credit will rise to 200 per cent this year and 225 per cent next year. An extra £100m worth of funding for new research facilities at universities.

From the horse’s mouth:

Chancellor George Osborne said: “If Britain is really to become a home of innovation, then we want research and development to take place not just in our great universities, but in our smaller businesses too.

“One of our greatest high tech innovators, James Dyson, has urged me to increase the support they get. I have listened to him, and have gone even further than he recommends.

“From April this year, the small companies Research and Development Tax Credit will rise to 200 per cent – and from next year it will rise again to 225 per cent.”

Our verdict:

The improvement to the R&D tax credits is good for SMEs, especially those playing in the hi-tech and bio-tech spaces. Let’s face it, you can’t really do much better than get a £2 tax credit for only £1 spent. But Osborne has gone and done that, it’s going to get better, by 25p next year.

The extra funding for new science facilities at select universities is also good news, and could lead to more successful spin-outs.

Your verdict:

Glen Manchester, CEO of Thunderhead: “We would hope the £100m funding for science facilities will have a longer term benefit in supporting innovation, and the development of the skills required to help company’s like Thunderhead sustain competitive advantage over the long term.”

Bobby Lane, partner at Shelley Stock Hutter: “Increasing the rate of R&D tax relief to 200 per cent in 2011 will be good for some SMEs, but the process to gain access to this is long, complicated and not well-publicised – and will not encourage the growth of many SMEs.”

Lee Hopley, EEF chief economist: “Raising the rate of the SME credit was essential to maintain the effectiveness of the UK R&D tax credit regime. The uplift will provide a much needed cash flow boost to innovative manufacturers.”

Stian Westlake, executive director of policy and research at NESTA: “We welcome today’s simplification and expansion of the R&D tax credit. This is something called for in our work with Sir James Dyson and is of huge importance for industries such as the UK’s video games sector. This will support and encourage our most innovative firms to make longer-term investments and take the sorts of risks which have the potential to grow their business in a sustainable way for the benefit of the UK economy.”

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