Pre-Budget 2003: ‘R&D tax credits not good enough’

Link: Pre-Budget 2003 special

The chancellor announced a new category of qualifying costs for R&D tax breaks, widening the tax credit scheme to specifically include direct costs like software and power usage.

Gordon Brown said the reforms were aimed at helping Britain to become the pre-eminent location for science and R&D.

But David O’Keeff, head of R&D tax relief at KPMG, said that only raising the rate of tax relief for large companies would have a tangible affect on investment decisions.

‘It’s not going to be enough to incentivise larger companies. To do that he would need to raise the rate of relief from the additional 25% on qualifying R&D costs to at least 35% for large companies,’ said O’Keeff.

At present SMEs get an additional 50% relief on qualifying R&D costs.

The Inland Revenue said the new draft R&D guidelines would make claiming R&D relief clearer and easier to navigate. The definitions replace current requirements for novelty and innovation with the need to show an ‘advance in technology or science.’

David Cobb, head of tax services at Deloitte, said: ‘This is good news for manufacturers in particular. Previously they would struggle with a tax inspector who would just shrug their shoulders and say show me the innovation.’

The Treasury said clearer definitions would reduce compliance costs by making it easier for them to decide whether their activities would qualify for the credit.

Under the new definition of qualifying costs, companies would be able to claim specifically for materials consumed, software, water and fuel used directly in R&D.

‘It’s not enough to make companies move R&D to the UK but it might help stem the flow of those moving overseas,’ added Cobb.

Related reading