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UK Firms Get GBP150 Million In Research And Development Credits

by Robert Lee, Tax-News.com, London

05 November 2007


HM Revenue and Custom has announced that its specialist Research and Development units across the UK made cash payments totaling GBP150 million to local innovative science and technology companies in the last year.

The units, which are based in Cardiff, Southampton, Maidstone, Manchester, Cambridge, Leicester and Croydon, have dealt with almost 5,000 claims in the last 12 months.

Some of the industries that have received support include: computer games, sports cars, artificial intelligence, manufacturing, cheese making, cell research, food testing, plant breeding and machine safety.

HMRC's Head of R&D Tax Credits, Jeremy Sherwood observed that:

"This is an incredible result in one year. HMRC's R&D Units are keen to help business and innovation to grow throughout the UK. They help support small and medium sized businesses across all business sectors to make successful tax credit claims."

"We are very pleased that so many companies have approached us to find out whether they are eligible for funding. Our R&D teams regularly visit companies at their premises and help them to ensure they do not miss out on R&D tax credits."

"We always look forward to hearing from any company in science and technology with innovative ideas who have not yet thought of funding through R&D Tax Credits."

Research and development (R&D) tax credits are a company tax relief which can either reduce a company's tax bill or, for some small or medium sized companies, provide a cash sum. The aim of the tax credits is to encourage greater R&D spending, in order to promote investment in scientific or technical innovation.

The R&D tax credit works by allowing companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. Small or medium companies can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from HM Revenue & Customs.

In December 2005, then Chancellor of the Exchequer Gordon Brown announced that the administration of the R&D Tax Credits for companies would be improved by creating specialist R&D units to deal with all R&D tax credit claims outside the Large Business Service (which deals with the very biggest public companies). The seven specialist units were launched on 1 November 2006.

The UK government's R&D tax credit has however, been the subject of frequent criticism from tax advisors for its complexity, which they says has resulted in a low take-up of the scheme. Independent research published in June by the Institute of Chartered Accountants in England & Wales (ICAEW) concluded that the lack of incentives for smaller companies to participate in R&D tax credits will continue, despite recent changes to the system. This study found that SMEs were discouraged from applying for an R&D tax credit due to uncertainty over whether it would be approved, with most respondents saying they were ‘not at all’ confident of success. The average level of confidence for both types of incentive was less than 50%. Added to this, a business might not know if its claim will succeed until 21 months, or possibly longer, after taking the decision to invest. This uncertainty causes particular problems for smaller businesses. In addition, the costs of applying for the credit can vary enormously.

The government has also been criticised for not sufficiently publicising its R&D regime. According to a survey conducted by KPMG earlier in the year, just 20% of middle market companies sampled felt they were sufficiently aware and well-informed about the R&D tax credit scheme. Of these, less than half had actually applied.


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