Tax breaks for software R&D were granted to small and medium-sized companies in 2001 and extended to corporates last year, allowing them to offset investment against tax. But the Department of Trade and Industry’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. Director of campaigns Tom Wills-Sandford said: ‘For large companies, the effective reward they get for investing in research and development is 4% to 5%. So if you spend £1m you get between £40,000 and £50,000 back. 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 have found them difficult to obtain. ‘It’s my nightmare that R&D will move offshore and make the UK a much poorer place,’ said Wills-Sandford.
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