Research and Development Tax Credits The 2000 Budget introduced special tax reliefs for SMEs on qualifying R&D expenditure. The 2002 Budget extended this initiative and introduced similar reliefs for larger companies. The purpose of the scheme is to encourage research and development and to promote investment in innovation in order to stimulate growth and competitiveness for UK companies and authorised Scientific Research Associations. Generous tax reliefs are offered on both capital and revenue expenditure in the tax year in which they are incurred. Capital Allowances for R&D Expenditure Revenue Spending on R&D Payments to Scientific Research Association On top of the 100% tax allowances available for R&D capital and revenue spending, up to 50% tax credits are available which can be taken either to increase the amount set against profits or as a payment if the business has made a loss. The Government's recent evaluation of the R&D tax credit shows a positive impact since its introduction in 2000. DBERR evidence has indicated strong growth in the number of R&D intensive companies in the UK. The Government has expressed its wish to support the sustained growth of these innovators through the tax credit in the 2005 Pre-Budget Report. HMRC has issued a practice note covering research and development tax credits which sets out the detail of the 13 new specialist R&D Tax Units. These are operative from 1 November 2006 and will now facilitate applications and processing of R&D Tax Credit applications. The government has stated that these units will speed up and improve this process.

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