The government announced its intention to increase the rate of relief for small and medium-sized enterprises (SMEs) to 175% of qualifying R&D expenditure and 130% for larger companies.

David Cobb, head of R&D tax at Deloitte, said: “This has gone further than we expected and, along with the establishment of the specialist R&D units, reflects the government’s enthusiasm for encouraging innovative activities in the UK. Even after taking into account the various changes in the corporation tax rates in the coming years, the net benefit of the relief should be greater for SMEs and large companies.”


Corporate response to the chancellor’s 11th budget, which included a cut in the headline corporate tax rate, was measured. Bill Dodwell, head of tax policy at Deloitte, said: “The chancellor’s trump card – a cut in corporation tax from 30% to 28%, from April 2008 – certainly grabs the headlines, but the impact of all the budget measures gives away no cash to UK business overall.”

He added: “While the cut, which will cost the Treasury more than £2bn annually, will please business, it will be offset by the reduction of the main rate of capital allowances to 20% from 25%. These changes represent the biggest changes to the capital allowances regime in the past 20 years and the real winners will be among the UK’s service companies, including banks and financial services companies, for which capital allowances have less impact.

“The losers may be manufacturers and possibly the hotel sector. The announcement is a clear signal from the chancellor that the future is all about services and R&D.”