

HMRC internal manual

Corporate Intangibles Research and Development Manual

R&D tax relief: background

Historically, UK spending on R&D, as a proportion of Gross Domestic Product, has lagged behind that of many other countries. Between 1981 and 1999 it actually fell as a proportion of Gross Domestic Product, while in most comparable countries it was rising.

The Government, as part of its agenda to build a modern knowledge based economy, and improve productivity, wishes to increase the amount spent on R&D by companies. To that end it has introduced two reliefs for companies incurring revenue expenditure in this way. One is for large companies and one for companies that are small or medium enterprises (SMEs). A general overview of R&D tax relief and a comparison of the schemes is at CIRD80250.

Because the SME relief is targeted at a particular class of companies, it has to come within the EU rules on State aid (CIRD81670). Doing so, means including some additional restrictions.

There is more detailed guidance on what is meant by an SME at CIRD91000 onwards.