R&D tax reforms expected to cut red tape

Link: Pre-Budget special report

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.

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

Gordon Brown announced the reforms as part of his agenda to make Britain the pre-eminent location for science and R&D.

The new definitions, which are expected to make R&D guide-lines clearer and easier to navigate, replace current requirements for novelty and innovation with the need to show an ‘advance in technology or science’.

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

Under the new definition of qualifying costs, companies can claim specifically for materials con-sumed, software, water and fuel used directly in R&D.

But David O’Keeffe, 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’Keeffe.

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

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