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 its definition 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 prebudget 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," Brown said.
The move has already been welcomed by Intellect, a trade body representing Britain's information technology, electronics and telecommunications industries.
"The steps announced today will provide increased incentives to multinational organizations considering the U.K. for their R&D efforts and ensure that British high-tech businesses are better placed to develop and produce the innovative products and services they need to compete in the global economy," said Tom Wills-Sandford, Intellect's campaigns director.
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 Thursday.Graeme Wearden of ZDNet UK reported from London.