TaxAdministration‘Revenue inspectors don’t understand IT’

'Revenue inspectors don't understand IT'

Companies are missing out on tax breaks for software R&D because Inland Revenue tax inspectors do not understand the nature of their business, claims IT trade body Intellect

Link: R&D tax credits increased

Tax breaks for software R&D were granted to SMEs in 2001 and extended to corporates last year, allowing them to offset investment against tax.

But the DTI’s annual ‘Research and Development Scoreboard’ shows that, as a percentage of sales, the UK’s top 700 companies once again spent 2.2% on R&D. This compares with 4.3% for the top 700 international companies and 5.2% for those in the US.

Trade body Intellect said the tax breaks offered were not as generous as those available abroad and needed to be made easier for businesses to collect.

Our main concern is that for large companies the effective reward they get for investing in R&D is four to five per cent. So if you spend £1m you get between £40,000 and £50,000 back. That’s below the noise level,’ Tom Wills-Sandford, director of campaigns at Intellect, told VNU News Centre.

‘You need somewhere around 10% for an R&D or finance manager to say it will affect their decision either to do the R&D in the first place or to do it in the UK.’

Intellect has been working with the Inland Revenue to improve tax inspectors’ understanding of how tax credits can be applied to software R&D, as businesses had found obtaining them difficult.

‘We are moving towards a knowledge economy and need a more highly skilled workforce. It’s my nightmare that R&D will move offshore and make the UK a much poorer place,’ Wills-Sandford added.

The DTI report added that even though R&D investment in the UK’s software and IT services sector is rising, it is behind the international average of 11% as a percentage of sales.

Science and innovation minister, Lord Sainsbury said in a statement: ‘R&D helps create the innovative products and services that UK businesses need to compete on the global stage. There are successful UK companies in many sectors investing in R&D at world- class levels, but there needs to be more.’

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