Research and development is one of the key drivers for productivity growth. High levels of R and D, support strong and stable growth. The Government's target is to raise the level of R & D investment in the UK as a whole to 2.5% of GDP by 2014. The aim of the Research and Development Tax Credits scheme is to encourage greater investment in innovation in the UK.

The R & D Tax Credit scheme was introduced in 2000 for SME's and 2004 for larger companies. The SME scheme was enhanced from 1st August 2008 and the Large company scheme from the 1st April 2008. The scheme allows qualifying Research and Development costs to be enhanced for company tax computation purposes.

To qualify; R & D must be part of a project or planned objective, it must seek to increase the overall stock of knowledge or capability in a particular field, it must seek to resolve scientific or system uncertainty. The caveat that must be bourne in mind when reading this paragraph is "within your business". R & D includes gaining knowledge that already exists elsewhere, but which is "trade secret" and therefore unavailable to your business, therefore to gain it, you must re-invent it.

From 1st August 2008 the definition of a Large company was doubled to have 500 or more employees with either turnover at €100million or more or a balance sheet totalling €86million or more.