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The Chancellor delivered his autumn statement on 29 November. Please see below for our commentary.

Introduction of an 'above the line' R&D tax credit regime from 2013

The announcement that an 'above the line' R&D tax credit regime will be introduced for larger companies is very welcome. Deloitte surveyed companies in 2010 to understand how the current R&D tax regimes were impacting them. Many large companies believed that a move to an 'above the line' tax credit would significantly increase the visibility of the relief to the businesses' key R&D and technology decision makers. It was felt that this visibility would lead to more R&D being undertaken in the UK, increasing demand for scientific and technical employees.

Subsequently this change has been discussed as part of the Consultation process which has been ongoing throughout 2011. The details of the 'above the line' credit will be consulted on further as part of the Budget 2012, but it is anticipated that a change to an 'above the line' credit may allow larger companies which currently have tax losses to claim a tax refund within an agreed period of time. In addition this change may impact companies with foreign parents who have previously found that the UK R&D tax benefit is negated by the group's overall tax position.

The move to an 'above the line' credit will potentially increase the expenditure on the R&D relief, but we are pleased to note that the Chancellor has stated that the Small & Medium Sized Entities (SME) R&D incentives will not be reduced as a result of this change. We look forward to the release of the draft legislation for R&D on 6th December and to working with HMG on the 'above the line' consultation as this will provide more details of the forthcoming changes.

Seed Enterprise Investment Schemes (SEIS)

The Government has announced today a new scheme for relief on investments in start-up companies. It is called Seed Enterprise Investment Scheme (SEIS) and it will be available from 6 April 2012. It will run alongside the existing Enterprise Investment scheme but will be targeted at start up companies.

The main features of the new scheme are as follows:

  • Income tax relief of 50% of the investment will be available to individuals who invest in qualifying companies, irrespective of their marginal rate of tax;
  • An annual investment limit of £100,000 per individual will apply;
  • A cumulative investment limit of £150,000 per company will apply;
  • Gains arising on the disposal of other assets in 2012/13 will attract a capital gains tax exemption if they are reinvested through the SEIS in the same year.

In addition to announcing the new scheme, the Government has confirmed that simplifications will be made to the existing rules for Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).

The enhanced rate of relief reflects the inherently risky nature of small start-up companies and has been estimated to cost the Exchequer £50 million in the first year and lower amounts in later years, when the capital gains relief drops away. Tax relief at up to 78% in the first year will make SEIS an attractive option for individuals who wish to invest in start-up companies. It is unlikely that the rules will allow investment in a connected company, so that investors will not be able to invest in a company they control.