Released: Thursday 17th March 2011

The Government must protect the incentive schemes that encourage investment in research and development “across the board”, says leading business and financial advisers Grant Thornton, and not be tempted by the findings of the Dyson report to restrict tax benefits to a specific sector or type of technology in this month’s Budget.
 
Grant Thornton says that R&D tax credit provides a clear and demonstrable incentive to invest in innovation, which is vital to the UK and Scottish economy. Suggestions that the Government might scale down this benefit by restricting its availability to ‘high-tech’ organisations, as put forward by Sir James Dyson, is causing concern.
 
Neil McInnes for Grant Thornton in Scotland goes on to say that while finance remains one of the biggest challenges for Scottish companies, R&D tax credits enable many SMEs and start-ups to maintain a sustained R&D programme.
 
He says:

“The UK cannot afford to lose the benefits of what it has already invested in R&D. The current system has been in place for ten years and we are seeing clear benefits as the knowledge and take-up of the relief continues to expand.
 
“Restricting it now to high-tech companies as suggested in the Dyson report, or withdrawing it from those that allocate only a small proportion of their overall spend to R&D would be destructive.
 
“If innovation is to drive future income for the UK we believe it should be incentivised across the board,regardless of the shape and size of the investing company and that relief should not be limited by yet more conditions.
 
“Any company which undertakes innovation as part of its business is adding something valuable to our economy and we believe this should continue to be supported.”

Further to the publication of the Dyson report in March 2010 the Government launched a consultation into the taxation of innovation and intellectual property, responses on which closed on 22 February 2011. Neil McInnes’ comments follow a series of workshops and interviews with Grant Thornton clients on the consultation, which highlighted that R&D tax relief is valued by companies with the principle of providing support for innovative companies through the tax system fundamentally popular.
 
These discussions also found that larger organisations would be less likely to maintain an R&D presence in the UK without this relief, while SME claimants indicated that the relief is vital in enabling them to maintain R&D investment in the current economic climate.  
 
He added:

“While against restricting the reliefs to ‘high-tech’, the companies we spoke to believed that if James Dyson's suggestion of increasing the relief to 200% were enacted, this would persuade them to undertake more R&D projects than they do currently.
 
“If other reliefs are being scaled back, this is an area which is believed to drive positive behavioural changes and as such our clients saw it as a worthwhile area to which to divert funds.
 
“Geographically mobile companies locate R&D facilities in territories with lower costs and more attractive incentives. Therefore, in the context of the large company scheme in particular, continued and improved investment in the schemes was seen as important in improving the UK's standing as an attractive location in which to base innovative business activity.”

Notes to editor:
 
Feedback from Grant Thornton’s client consultation included the following proposals: 
 

• The Government further examines the rationale for making any changes 'cost neutral'. If additional investment by HM Treasury will lead to increased investment by the private sector, then that may be the more sensible way forward
• The PAYE and National Insurance cap on the payable tax credit should be removed and the rate of relief should be increased to 200%
• The reliefs should support all valuable innovation and should not be restricted to 'high tech' companies
• The rate of relief available to loss making small and medium-sized enterprises (SMEs) should be brought closer in line to the benefits available to profit making companies
• The categories of qualifying costs should be simplified. In particular, all 'people costs' should be eligible relief, including the full costs of external consultants and benefits in kind
• Methods providing for earlier payment of the tax credits should be examined   

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