Tax Breaks Yet To Influence UK R&D Spending Says DTI Report

by Jason Gorringe, Tax-News.com, London

21 October 2003

Tax breaks designed to encourage UK firms to invest in research and development projects have yet to have a discernable effect on the level of investment in this area according to a study published by the Department of Trade and Industry yesterday.

The tax breaks came into effect two years ago and allow large firms to offset 125% of R&D expenses against tax and smaller firms to offset 150% of research spending.

In spite of this it seems UK firms continue to spend less than their international competitors on research and the DTI's R&D Scoreboard for 2003 reveals that spending in this area runs on average at 2.2% as a percentage of sales for the UK's top 700 firms. This compares to a level of 4.3% for the top 700 international firms and 5.2% for the top 700 US companies. There also continues to be an overwhelming bias towards pharmaceutical and aerospace investment in the UK according to the figures.

However, Mike Tubbs, one of the DTI report's authors, puts the rather disappointing figures down to the fact that firms had already allocated their R&D budgets for 2002/2003 before the new measure came into effect in the 2002 budget.

Recommended