R&D tax relief review – threats and opportunities for UK plc

Wednesday, December 08, 2010 | Posted by: Fiona Cullinan
Categories: Business advice, Tax, Technology sector | Tags: innovation, business, tax, research, technology, report, relief, incentives, consultation, development, review, R&D, Dyson, Samantha Vanags, Sam Vanags

The Government recently announced that it was reviewing the ways in which it incentivises investment in research and development (R&D).  This raises a number of questions over the future of R&D tax relief. Technology partner Samantha Vanags explains the issues and responds with Grant Thornton’s recommendations on R&D tax incentives.

Focus on high tech companies and big R&D spenders?
The Government consultation considers whether relief should be focused on high-tech companies because of their particularly strong link to R&D. But we don’t agree with this and we wouldn’t want the scheme to be withdrawn from companies that allocate only a small proportion of their overall spend to R&D. If innovation is driving future income for the UK we believe it should be incentivised, regardless of the shape and size of the investing company.  The UK will be less attractive as a place to do business if R&D benefits are scaled down significantly.

Sector restrictions kill innovation
Grant Thornton also believes that R&D tax relief should not be restricted by sector or by type of technology. Our clients’ experiences show that R&D is pursued in a wide range of sectors, including – but in no way limited to – life sciences, manufacturing, engineering and IT. Companies of every size, in all of these sectors, are investing in the UK’s future income streams. We believe that the innovations which each of them contribute to our economy are valuable, and that the support which is currently available across every sector should continue.

Help for SMEs and start-ups?
We welcome a review of the R&D tax regime; more focus needs to be on helping early stage SMEs and start-ups, which face higher barriers to maintaining a sustained R&D programme. R&D tax relief schemes clearly offer real cash incentives to companies without a major administrative burden or cash spend for the Government. We recommend that this goes further by, for example, increasing the rate of cash-back offered to early stage companies when they surrender losses.

R&D tax incentives report
Grant Thornton’s report, ‘The Dyson effect and the future: Tax incentives for research and development (R&D) in the UK’ summarises our views on the future of R&D tax relief, which in outline are:

• We support the continuation and enhancement of both small and medium-sized enterprises (SME) and large company R&D tax relief schemes

• We do not agree that R&D tax relief should be restricted to ‘high tech’ companies.

• We think that more should be done to help early stage SMEs and start-ups. This could include adjustment of the rate of payable tax credit rates so that these businesses get cash support when they need it most.

Download your free copy of the Dyson report.

For further advice on R&D tax incentives for your company or sector, visit our Research and Development tax relief page, or contact Samantha Vanags on samantha.j.vanags@uk.gt.com

What do you think?

Do you have any thoughts on this important consultation for British industry? The key questions highlighted in the consultation document are:

1. Do R&D tax credits enhance the competitiveness of the UK corporate tax regime as a location for businesses to develop, hold and exploit IP?

2. Do R&D credits represent value for money for the taxpayer, and are they affordable within the wider Government priority of addressing the deficit?

3. Are there any changes to the structure of the schemes that would significantly improve your impact in stimulating investment in R&D, in the context of the wider corporate tax reforms?

We welcome your comments.

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