Supporting UK innovation through R&D tax credits will drive a private sector led recovery
22 August 2011
Despite speculation in the press to the contrary, under the current Government it is clear that Research & Development (R&D) tax relief is here to stay for the foreseeable future. Indeed in a recent Consultation paper, the Government has made a commitment to make the UK the most attractive place to start and invest in innovative technology companies, and this will have a significant impact on the marine industry, which is so heavily reliant on innovation.
The recent Seawork 2011 exhibition in Southampton shows just how reliant the marine sector is on innovation, and whilst the ‘Spirit of Innovation’ awards pay testament to this, you only need walk around the exhibition hall to see the level of R&D being undertaken by the sector. But, the big questions are, are companies in the marine sector making the most of the government tax reliefs available? Do they know what’s available and what the latest proposals for changes to the reliefs are? James Tetley, Corporate Tax Manager at BDO in Southampton suspects not. “We continue to meet with companies in the industry, including manufacturers of luxury superyachts, performance dinghy manufacturers, naval architects, and many others, explaining the benefit of these reliefs. In most cases, businesses are surprised at the scope of the relief, and how beneficial it can be in helping cash flow, enabling them to fund continued development.”
R&D tax credits provide nearly £1 billion of support to over 8,500 companies. SME’s account for 6,500 claimants at a cost to the Exchequer of £230 million, whilst 2,200 large companies claim around £700 million each year in R&D tax relief. These are big numbers, particularly in our current times of austerity, but maybe these proposals for reform shine a glimmer of light on companies relying so heavily on investment in innovation.
The biggest hurdle that we find is in helping companies to understand that R&D tax relief is not just available for biotech/ pharmaceutical companies, or those in the high-tech industry. For tax purposes, R&D exists where companies are seeking ‘an advance in science or technology, through the resolution of scientific or technological uncertainty’ – for many marine companies, this is exactly what they are doing when designing and developing a new product, or enhancing an existing product (be it a yacht, a deck fitting or a propeller).
In this year’s Budget, George Osborne announced a number of immediate improvements to SME R&D relief, taking effect from 1 April 2011. These included an increase in the current enhanced tax deduction of 175% to 200%, with a further increase to 225% from 1 April 2012 and further consultation.
The latest proposals being discussed in the consultation include:
- Removal of the PAYE cap for SMEs and the £10,000 de minimus.
- Relaxing current rules for externally provided workers in order to better reflect use of personal service companies.
- Providing greater guidance on the principle of ‘uncertainty’ in cases where goods are being created (with a view to clarifying current concerns around the definition of production, which has often been an issue in point for manufacturers of high value products, e.g. yachts, where the line between R&D and production is often a fine one to gauge, and it is not cost effective to scrap a prototype).
- Simplifying the rules for sub-contracted R&D.
- A pilot scheme for companies seeking ‘advance assurance’ over whether they will qualify for the relief.
BDO will be preparing a response to this Consultation, but the outlook for those in the marine industry claiming UK tax relief for innovation looks positive.
For further information:
Contact: James Tetley, BDO Southampton
Email:james.tetley@bdo.co.uk
