They will derive the majority of the benefit, being responsible for 39% of all company R&D undertaken in the UK, a PricewaterhouseCoopers Fiscal Policy Briefing investigation revealed.
Pharmaceuticals companies would receive Pounds 104m in tax breaks if the government adopted a R&D tax credit scheme that extended the tax break to large companies based on their incremental spending above a minimum baseline level.
The report estimated the costs to the government to be around Pounds 230m, but said this could rise significantly if the incentive encouraged large companies to increase their spending on R&D.
The incremental option has the backing of Treasury officials, who claim a US-styled R&D tax credit system would be acceptable under EU guidelines, and has already been adopted in France.
An extension of the current 10% rate to all companies would cost the government at least Pounds 1.3 billion per annum.
Regardless of the option the chancellor selects, at least 80% of the total value of the tax credits would be split between seven or eight key industry led by pharmaceuticals, followed by aerospace and defence, IT hardware and software, and electronics companies.
The UK has lagging behind the G5 nations in proportionate spending on R&D, but choosing the right R&D incentive could encourage multinational companies to locate their R&D activities in the UK.
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