R&D credits anger

Chancellor Gordon Brown’s Budget came under further fire this week as leading business software companies struck at research and development tax credits and tax experts warned new Customs & Excise powers threatened the UK’s position as a leading financial centre.

In a vote at last week’s agm of the Business and Accountancy Software Developers Association, none of the 50 or so vendors present said the Budget would improve their business prospects.

The government is seeking responses to proposals that would give companies which spend more than #50,000 a year on research an additional 50% tax credit, on top of the 100% relief they currently get.

The scheme will apply to expenditure, but software developers are worried the Revenue will push them into capitalising R&D costs in order to qualify for support.

‘Once you put R&D in accounts, the Revenue will expect to see it in there for ever,’ said Philip Taylor, acting finance director at SquareSum. ‘I don’t want to change our accounts to grab things that come by every year or so.’

Meanwhile, the Institute of Directors’ tax executive Richard Baron said aggressive use by Customs of its new right to remove companies from VAT groups could force banks and insurance companies abroad.

The new power allows Customs to expel companies from VAT groups when they ‘pose a threat’ to tax revenue.

It replaces controversial proposals which would have stripped banks and insurers of their VAT grouping rights – worth up to #400m – to the industries.

Although relieved at the government’s decision not to go ahead with these proposals, accountants said the sweeping new powers granted to Customs in the Budget were ill-defined and could lead to groups of companies being treated unfairly.

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