R&D tax credit to be reformed

Details of the change are still sketchy, but it is understood that companies will now be able to claim back the cost of software and fuel used for R&D purposes. By simplifying the definition of research and development for tax purposes, the government hopes to make it easier for companies to decide at the outset of a project whether they will be eligible for the credit.

The chancellor, Gordon Brown, announced the change in his pre-Budget report, delivered to the House of Commons on Wednesday afternoon. "I want Britain to be the best location for science and research and development and I can announce a widening of the successful R&D credit to include the direct costs of software and power," said Brown.

The move has already been welcomed by Intellect, a trade body representing Britain's IT, electronics and telecommunications industries. "The chancellor, Gordon Brownc is right to take seriously the need to incentivise R&D," said Tom Wills-Sandford, Intellect campaigns director. "The steps announced today will provide increased incentives to multi-national organisations considering the UK for their R&D efforts, and ensure that British hi-tech businesses are better placed to develop and produce the innovative products and services they need to compete in the global economy," he added.

Earlier this week, Intellect urged the government to increase the value of R&D tax breaks, claiming that on most projects it isn't possible to claw back more than 5 percent of the full cost.

Further details of the revised R&D tax credit system should be available on Thursday