UK: Comment from David Cobb, head of R&D tax services at Deloitte, on the R&D measures.

"Although there are no details on timing, the Government has announced an intention to effectively extend the more beneficial R&D regime that currently applies to SMEs to medium sized companies.

"The SME regime provides for a 50% additional deduction for qualifying R&D expenditure, as opposed to the 25% additional deduction available for larger companies. However, it also has provision for an election to surrender the enhanced deductions for a cash repayment if the claimant company is loss making. The cash repayment can be up to 24% of the qualifying R&D expenditure.

"One of the key tests in determining whether or not a company is an SME is the number of employees, which currently must be less than 250. The intention is to increase this limit to 500 employees thus opening up the more beneficial relief to many more companies. This is excellent news and will be of particular interest to companies in that band that are loss making as they do not currently enjoy any short term benefit from the relief - only an additional loss to carry forward until such time as they return to profit.

"Because of the ability to reclaim a cash repayment, the SME relief constitutes notified state aid and therefore requires the approval of the EU before such an extension can be introduced. We understand that these discussions are under way but no change can be implemented until this change has been agreed.

"The other major change is the shortening of the time limit for filing R&D claims from 6 years to the first anniversary of the filing deadline for the tax return - this is effectively two years from the end of the accounting year. This will be effective for years ending on or after 31 March 2006 and all claims for years ending prior to that will have to be filed by 31 March 2008.

"A change will also be introduced to include payments to volunteers for clinical trials in the categories of costs qualifying for the relief but no precise details are yet available. To the extent that this applies to the SME regime, approval will have to be obtained from the EU because of the notified state aid issues highlighted above."

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