Guidelines have been produced on what constitutes research and development for tax purposes. Broadly, full tax relief is available for such expenditure for small and medium-sized companies, provided that the amount spent is at least £25,000 (or pro rata for accounting periods of less than 12 months).
The definition of research and development follows accounting standards, which are currently contained in Statement of Standard Accounting Practice SSAP 13. Research and development covers the whole range of work from acquiring new knowledge to developing specific products. Whereas the accounting standard is primarily concerned with what expenditure may be capitalised, the tax provisions relate solely to which items are tax deductible. For tax purposes, there is no need to make the distinction between the various forms of research and development.
Finance Act 2000 s68 and Sch19-20, which introduce the new tax law, allow the Treasury to make regulations for tax law to depart from accounting standards.
The guidelines supplement provisions in SSAP 13 with many examples of what would be regarded as research and development for tax purposes. Guidance is available from the DTI, including its website http:\\www.dti.gov.uk/support/taxcredit.
Research and Development (Prescribed Activities) Regulations SI 2000 No 2081
[2000]