Chancellor Alistair Darling announced changes to the research and development (R&D) tax credit regime in Wednesday’s budget.

David O’Keeffe, head of the R&D tax credits team at KPMG in the UK, said that the UK government wanted to increase the number of small and medium-sized companies that will qualify for R&D tax credits but that since this counts as EU state aid it was having to jump through a number of hoops in order to get approval.

He added that the effect of some of the changes was that contrary to the Chancellor’s stated aim of supporting SMEs, it would be particularly difficult for struggling firms to access this valuable incentive.

O’Keeffe explained that SMEs whose most recent accounts were not prepared on a ‘going concern’ basis would not be able to claim the R&D tax relief.

For some companies this could be the difference between just surviving and finally going under.

“This could potentially create tensions between businesses and their auditors. For example, the availability of an R&D tax credit might be enough to maintain the company as a going concern but until the accounts are signed as such, the credit would not be available – thus creating a circular argument,” O’Keeffe said.

The budget also introduced a cap on the level of relief for any single R&D project of EUR7.5 million.

“Whilst this is unlikely to be a huge issue for smaller SMEs, those at the larger end of the spectrum may have to monitor their spend more carefully,” O’Keeffe concluded.  

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