CIRD80200 - 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. R&D suffers from a market failure – a positive externailty, whereby a company doing R&D does not receive the full benefit of that expenditure, because other persons also benefit. The amount of R&D done overall is therefore less than is optimal. The Government, as part of its agenda to build a modern knowledge based economy, and improve productivity, therefore supports R&D by providing additional tax relief.
There are two R&D tax reliefs:
Small or Medium Enterprise (SME) Tax relief
Research and Development Tax Credit (RDEC).
A general overview of R&D tax relief and a comparison of the reliefs is at CIRD80250.