Changes to R&D tax credit 'welcome'

01 December 2011

Business

The introduction of an 'above the line' tax grant to replace the existing R&D tax credit for larger companies will only benefit the print industry if it is made available to SMEs, according to sources.

Britain's existing R&D tax credit scheme offers companies relief on tax payable on profits, which means that companies that spend heavily often lose out in the product development phase when they are often loss-making.

In a bid to make the UK a more attractive place for large multi-nationals to invest, the government has altered the scheme to allow the tax credit to be registered before tax, or 'above the line'.

This means that companies that that qualify for the R&D credit and are profitable will see their corporation tax bills offset by the amount of the credit, while loss-making companies will be able to claim a cash payment from the Treasury.

While the new scheme is specifically aimed at larger companies, according to a comment from PricewaterhouseCoopers (PwC) SMEs will continue to labour under the existing tax credit system.

Andy Cook, managing director of Hemel Hempstead-based manufacturer FFEI, also welcomed the new scheme; however, he warned that its scope needed to be expanded to SMEs in order to benefit the majority of UK print manufacturers.

"We welcome the 'above the line' R&D tax credit which has been announced for large businesses and effectively allows the tax credit to help improve the P&L and cash flow of the company," he said.

"However, we hope the government will also apply this to SME’s who have been crying out for it and desperately need cash to invest in R&D. We will have to wait and see the final detail."

Ian Dinwoodie, chief executive of Cambridge-based Xaar, agreed that the change was "a sensible move" due to the focus on pre-tax earnings over the net result, but said "the devil will be in the detail".

He added that the government should also look at offering incentives to encourage a higher level of graduate intake into R&D functions.

PwC partner, Diarmuid MacDougall, described the proposal as "a key move towards making the UK a more attractive place for investing in innovation".

"It is a very welcome step towards securing growth and making the UK more competitive as a location for the new technologies that will be vital to the country’s economic success," he added.