Newswatch – R&D costs at Oxford Instruments.

The narrow focus of the government’s much vaunted research and development tax credits will not boost Oxford Instruments’ full-year results announced today, despite the company being a key player in the expanding technology sector, according to analysts.

Analysts expect Oxford Instruments, a scientific research and instrument maker, to report pre-tax profits of £11.05m, compared with £15.8m in 1998.

In the March Budget, the government announced a string of US-style tax incentives for cutting-edge UK technology companies. But the tax credits of 150% for research and development expenditure – due to come into force next year – will only apply to small and medium-sized companies with turnovers of less than £11.2m and assets of less than £5.6m.

Companies can receive tax relief on research and development expenditure or a cash payment.

According to Andrew Bell, a tax partner at PricewaterhouseCoopers, the tax credits will exclude many important technology companies, such as Oxford Instruments, which face heavy research and development costs. ‘It’s a shame that companies like Oxford Instruments aren’t in the running for the tax credit,’ he said. ‘The tax credit was one of the most disappointing aspects of the Budget.’

Bell said there was also widespread confusion over what kind of research work would qualify for the tax credits because the government was reviewing its research and development definition.

The research and development tax relief will also only apply to the salaries of employees carrying out research work, and will not cover financing or equipment costs.

Related reading