UK: large companies looking for R&D credit changes

In a report (pdf, on the SMMT website) published this week (and you have to love a report that starts with a quote from Julius Caesar), the manufacturing & motor associations EEF and SMMT call for changes to the R&D tax relief. They’re looking for a “cash benefit or redeemable credit at the point R&D costs arise”, rather than a “relatively opaque offset against corporation tax payments”.

Broadly, this seems to mean that large companies apparently can’t convince their boards that the extra R&D tax deduction is worth anything. They may have a point, but it’s probably got more to do with the fact that (when we get to a 23% mainstream corporate tax rate) the large company R&D relief will be worth at most 6.9% of qualifying R&D expenditure to a large company.  Deduct the costs of making a claim, and the benefit is likely to fall below 6% – and that’s the bright line below which benefits generally fall into “background noise”.

Rather than an increase in the rate of large company R&D relief, however, the report calls for a repayable tax credit for loss-making large companies (there’s already a repayable credit for loss-making SMEs).  The suggestions strike me as a little optimistic, much as I am in favour of encouraging UK R&D – it’ll certainly make the UK attractive for R&D in large groups currently outside the UK: set up a subsidiary in the UK, spend money on R&D, make a loss and get money back from the tax authorities for losses that you couldn’t easily relieve back home anyway. But there seems to be nothing in this to provide an incentive to actually make a real profit in the UK (transfer pricing would suggest that a taxable profit ought to result) … the Treasury are presumably willing to take the risk with SME groups, in their fond belief that SMEs don’t really operate internationally. I’ll wait to see if they’ll be quite so accommodating to large groups.

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