R&D tax credits increased

Chancellor Gordon Brown’s extended tax credits for research and development could bring more overseas R&D investment into the UK, according to tax experts.

As a result of the change, international organisations with a global R&D budget are likely to reconsider their regional expenditure strategies and could allocate more to R&D projects in the UK, to benefit from the increased tax relief.

‘The UK is increasingly attractive as far as tax relief on R&D is concerned,’ said David O’Keefe, head of the R&D tax relief group of KPMG. ‘Potentially, the changes could increase the investments in the UK.’Link: Budget 2003

But while O’Keefe praised the change that will allow more R&D expenditure to be exempt, he criticised the chancellor for not addressing the ‘hurdles’ to qualification for the relief. ‘The changes are good but could get lost in red tape,’ he said.

But the finance director of a leading communication technology company welcomed the move. Kirk Locke-Scobie, UK and Ireland FD of Avaya, welcomed the increased R&D relief and said he believed it could trigger a general boost in productivity. ‘It will be extremely beneficial and increase the growth rate,’ he said.

He believes the changes could alter the strategy for Avaya’s $459m (£295m) global R&D budget. Avaya’s R&D investments in the US are far more substantial than its investments in the UK. But, depending on the exact impact of the new rules, he said ‘maybe that balance would change’.

Current R&D credits allow companies to deduct 100% of R&D from their taxable income. Under the new rules, SMEs can deduct 150% of R&D, while large companies can deduct 125%. The threshold for companies to claim R&D credits has been lowered from £25,000 to £10,000, to allow smaller research projects to qualify for exemption.

Ian Hayes, chairman of the tax faculty of the ICAEW, said the faculty welcomed the measures to encourage spending on R&D. ‘For too long the UK tax rules on research and development have been both restrictive and complicated,’ he said.

‘The government has already taken steps to encourage more spending on R&D and these proposals will provide a positive boost to R&D spending, which is a cornerstone in improving the productivity and prosperity of the UK,’ he added.

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