The credit, set at 25%, will allow companies to make claims against 125% of total qualifying R&D expenditure.
For technology-centric companies that qualify it will effectively mean a net increase of 7.5% in the tax they can claim back on R&D expenditure.
Small firms have been eligible since 2000 and this will extend it to around 1500 businesses which collectively spend more than £11bn a year on research.
The rate was ‘higher than expected but lower than hoped for’, said Derek Jenkins, tax partner at PricewaterhouseCoopers.
‘This extra 5% will be the equivalent of an extra £80m to encourage UK companies to invest in R&D. But what was needed to put the UK on a par with other industrialised countries was something in the range of 40 to 50%.’
Business groups also welcomed the boost. ‘This is a significant boost to UK innovation. We would like it increased but this is a good start for a credit that will make a real difference,’ said Digby Jones, director general of the Confederation of British Industry.
Further guidance is expected in the next few weeks but companies face complications over the definition of ‘qualifying R&D expenditure’, according to business advisors Grant Thornton.