Patricia Hewitt, the trade and industry secretary, has published new guidelines in an attempt to clear up confusion over research and development (R&D) tax breaks.
Many small businesses do not understand the complex R&D tax rules, resulting in firms paying too much tax when undertaking research projects.
Accountants have pointed out that some small firms have not started R&D programmes due to the mistaken belief that they will not be eligible for tax breaks.
Hewitt said that the new guidelines, that will come into force in April, will clear up grey areas in the rules and make the criteria for tax credits easier to understand for businesses.
The new guidance will also emphasise that R&D tax credits apply to development work as much as research, and to improved processes and not just new projects.
The trade and industry secretary said that tax breaks for innovative firms will help the whole UK economy.
“We want the UK to be a key hub in the global knowledge economy, and to achieve this we need companies that can turn research and development into profit, jobs and growth.
“R&D tax credits help our most innovative businesses succeed and create wealth.
“These new guidelines will make it simpler for businesses to interpret the tax credits and receive as much support as possible to carry out the R&D they do,” she said.
John Cridland, deputy director general of the Confederation of British Industry (CBI), welcomed the new guidance.
“Government’s continued support for research and development is extremely welcome. The CBI has been pressing for simplification of the R&D tax credit for some time and is pleased with these changes,” he said.
