Tax Credits For Software Developers In UK Budget

By Robert Lee, Tax-News.com, London

04 March 2003

Chief secretary to the treasury Paul Boateng has indicated that tax credits could be on the cards for the software development industry in Gordon Brown's impending budget.

In a speech given to around 100 Scottish business and trade union figures, Boateng was seen defending the often criticised system of tax credits, and said that there was scope for their use to be extended to stimulate certain sections of the economy. However, such tax credits have been slated in the past for being so complicated to claim, they act as a disincentive to those eligible, and in the light of this, Boateng did concede that the system could benefit from a certain amount of "fine tuning".

"There's still a lot more we can do with tax credits" the minister told the group, adding "there's an issue on that borderline between manufacturing and service, but also around intellectual property and research and development in relation to software, where we have to do more work. We haven't seen the end of the story".

According to Boateng, the government already assisted 100 large companies with £400 million in tax credits, and announced that extending this system for small and medium sized companies would help a further 4500 firms, costing the treasury an extra £100 million. Boateng also said there was potential for tax credits to further aid academic and scientific research, and that Chancellor Gordon Brown "has shown a willingness to recognise that potential", adding "he did that most recently in relation to our wider objectives in working with pharmaceuticals and academia in order to use the tax credit system to promote R&D in malaria, tuberculosis and HIV/AIDS. I anticipate we will see more such examples.

The Confederation of British Industry has been urging the government to extend it's use of the tax credit system in the run up to the 2003 budget, calling also for widening of the capital allowances scheme to cover medium and large as well as small businesses. The CBI claims this is increasingly necessary given its recent findings that business confidence is at it's lowest level since the September 11 attacks.

Polly Purvis, executive director of ScotlandIS which represents and promotes around 500 internet, software and multimedia businesses throughout Scotland said any help in the current economic climate would be welcome. "No one in the industry in Scotland has experienced such tough times before, and companies have cut back on the research end of development. However, there is still some amount of high level research and development going on" she explained. "It's difficult to be in the software industry without being involved in R&D" Purvis added. "So anything that helps make this process easier has to be welcomed, especially when businesses have to think carefully about what they invest in".

Fears were also expressed about the government's projections concerning economic growth and spending which have been criticised as over optimistic leading to fears of a future budget deficit problem. Boateng brushed this aside, blandly stating "We remain better placed than our competitors. We will make our plans within the envelope the Chancellor has identified and within the fiscal rules."

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