R&D tax credits were introduced for SMEs in 2000 and for large companies in 2002. At the same time as the SME tax credits were brought in, the Government introduced a definition of R&D for tax purposes, in Guidelines issued by the Secretary of State for Trade and Industry.
However, as companies have become more familiar with the procedure for claiming the tax credits, they have expressed concerns that the definition of R&D does not provide them with the degree of clarity and certainty they need to calculate which of their activities will qualify for the credit and thus the likely benefit.
Among the issues in the consultation is whether the definition should be extended into new areas, such as design, to take account of the full range of innovative activities carried on by companies.
Also, there is a perceived need for greater certainty over what constitutes 'consumable stores' for tax credit purposes (being items that qualify for the credit which are stored and consumed as part of the R&D process); the extension of the credits to include expenditure on licences for advanced software (currently excluded); and the definition of 'qualifying bodies' (to which large companies can subcontract R&D).
The Government believes that the tax credit is set at a generous rate and that the process of claiming the credit - via the Corporation Tax return - is straightforward. It is important, however, that companies are able to understand what activities they can claim for.
The R&D consultation document can be downloaded from the Treasury's site as a 62-page PDF.
Responses to the consultation can be sent by e-mail to: [email protected] to arrive no later than 10 October 2003.