CBI Seeks Extension Of R&D Tax Credits In The UK

by Amanda Banks, Tax-News.com, London

03 July 2001

The Confederation of British Industry (CBI) has urged Chancellor Gordon Brown to give firms tax credits for all spending on research and development, not just extra spending as the Treasury has proposed.

In a submission to government consultation on R&D tax credits, the CBI warned yesterday that giving credits to firms only for additional R&D expenditure would offer nothing to companies that regularly invest large amounts in innovation. According to the CBI, the so-called 'incremental' approach would put off companies by forcing them to wrestle with a complex formula for calculating the credit that might be available.

CBI members have called for the far simpler 'volume-based' approach where companies get a credit based on total R&D expenditure. This would encourage all firms to sustain and increase R&D investment. Plus it would send a powerful signal to international companies about Britain as a good business location.

In a statement released by the CBI, Deputy Director-General, John Cridland said: 'Companies voiced overwhelming support for Mr Brown's R&D tax credits. But they want an incentive that encourages high-levels of sustained investment, not a series of peaks and troughs. Some firms said they might not even claim an incremental tax credit. This is because it would be so complex to calculate and it offers no certainty as to the level of help available. Any credit would, of course, need to be set at a meaningful level.'

According to the CBI's research, Britain's R&D expenditure is below the European Union average and far behind the highest performing Nordic countries of Sweden and Finland. In particular, the Canadian government has made great strides by offering a volume-based 20 per cent tax credit on R&D expenditure.

Gordon Brown has already awarded volume-based R&D tax credits to smaller British companies, which can claim a total of up to 30 per cent of cost against tax. The CBI argues that extending the idea to other firms would be of most benefit to innovation-driven sectors, which the CBI believes are vital if Britain is to compete in the knowledge-driven economy.

Mr Cridland said R&D tax credits would not be a panacea for Britain's investment problems. They would have to be combined with other innovation-boosting measures such as encouraging greater collaboration between universities and business. He added: 'Firms have different needs so volume-based credits are the only way of encouraging investment across the board. Some companies need help to start R&D, others need help to reach international investment levels. Major players want incentives that sustain investment, such as will put Britain at the front of the queue for future projects.'

The full text of the CBI's submission document can be found at: http://www.cbi.org.uk/

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