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Changes to research and development (R&D) tax credits will benefit small and medium-sized enterprises (SMEs) to the tune of £180 million, according to business advisory firm Deloitte. The changes, which have just been approved by the EC and come into force on 1 August, broaden the definition of an SME and increase rates of relief.

To qualify as an SME under the new rules, companies need to have fewer than 500 employees, as opposed to 250 previously. Turnover should not exceed €100 million (£79 million), though companies beyond that threshold can still qualify if their annual balance sheet total is no more than €86 million.

The rate of relief for SMEs will increase from an additional 50 per cent to an additional 75 per cent of the eligible expenditure for amounts incurred from August.

David Cobb, global head of R&D tax at Deloitte, comments, ‘It has taken longer than expected to reach this point, but now companies [can] proceed with greater certainty over the benefits they can expect as a result of investing in R&D.’

The price paid for EC acceptance of these changes, according to Cobb, was the introduction of two restrictions to the scheme. The first prevents companies whose accounts are not prepared on a going concern basis from claiming the SME relief, while the second imposes a lifetime cap of €7.5 million on the additional benefit provided by the SME scheme.

Says Cobb, ‘The benefit of the positive changes should significantly outweigh the impact of the two restrictions imposed.’

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