Manufacturers' thumbs down for R&D tax breaks
13/03/2007

Almost forty per cent of North West manufacturers have no understanding of the government's revamped research & development tax break scheme, a new survey reveals.

The damning verdict also shows that only one in three of the region's businesses believe the tax credit system - overhauled in the spring budget - has had a positive impact on their R&D spend.

One hundred North West-based manufacturers across a variety of sectors took part in the survey by Manchester-based professional services group DTE.

"The results suggest the government's R&D tax incentive system, aimed at encouraging innovation and boosting productivity, remains too complex and inaccessible for many companies to benefit from fully," said Colin Smyth, a tax partner at DTE.

Asked to assess their level of understanding of the tax credits scheme, 38 per cent of respondents indicated 'not at all', while 45 per cent said 'partly', and 17 per cent registered a 'moderate' grasp of the system. No business in the survey claimed to have a 'full' understanding.

In response to the question of whether the R&D tax credits system had produced a positive impact on R&D spend, 36 per cent of respondents said 'yes', 33 per cent 'no', and 30 per cent expressed no opinion.

"Our questionnaire indicates that many companies are still unaware of the tax relief available on R&D expenditure, or do not have a sufficiently confident grasp of the rules to make an effective claim," commented Colin Smyth.

"This is not good news for North West region's business base because R&D is critical to competitiveness, particularly in the high value-added manufacturing sector that the government is keen to support."

The R&D tax relief system operates by lowering corporation tax for tax-paying businesses dependant on whether they are small & medium sized enterprises (SMEs) or larger companies. Each regime provides additional tax deductions on specific R&D spend, 50 per cent for SMEs and 25 per cent for larger companies.

"SMEs in a loss-making situation can receive cash repayments from HM Revenue & Customs (HMRC) of up to 24 per cent of the qualifying R&D expenditure, but there is no similar provision for larger companies that are making a loss," explained Colin Smyth.

The definition of commercial activities that qualify for R&D relief is also unclear, following a number of changes since the tax break came into effect in 2000.

"DTI figures show that UK companies spend only two per cent of turnover on R&D, compared to 2.6 per cent in France, four per cent in Japan, 4.1 per cent in Germany and six per cent in the US," added Colin Smyth.

"Clearly it is vitally important to the future of knowledge-based manufacturing that companies have a thorough understanding of tax breaks available to them, and that these are readily accessible and easy to understand."

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