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UK hi-tech industry demands better R&D tax breaks

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High-tech innovation in the UK is haemorrhaging offshore and only the Government offering improved tax breaks to support Britain as a research and development base can stem the tide.

This stark warning came from trade association Intellect which warned today in its Pre-Budget report that the nation will no longer be able produce the products and services it needs to compete in the global economy, unless the Government counters the growing threat from offshore competitors.

According to Tom Wills-Sandford, campaigns director, the breaks for undertaking R&D need to increase significantly. For large companies, he said, the effective tax break reward companies get for investing in R&D in the UK is between 3.75 per cent and 5 per cent of the actual cost.

"Government must understand that this figure is drastically below the 'noise level'. The implication of this is a massive drop in influence on R&D decision makers, who are firstly deciding whether to undertake R&D, and secondly where to do it. It is further drowned out by other uncertainties, such as the results of the R&D itself, exchange rates, and what the competition is doing."

Until the effective rate moves closer to the international average of 10 per cent, there will never be sufficient incentive for UK based technology companies to grow their share of global R&D, Wills-Sandford said. "In addition their ability to produce the innovative products and services that they need to compete in the global economy will diminish and the UK economy will suffer as a result."

Intellect also called on the Government to clarify the definition of R&D so that high tech project managers will know that an R&D project will qualify for tax incentives before the work is undertaken. In addition the trade association said it will badger the Treasury to ensure that 'engineering R&D' and 'software R&D' both unequivocally qualify for the Tax Credit. ®

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