The Chancellor today announced an increase in the new R&D Expenditure Credit for Large Companies from 9.1% to 10%. The new R&D Expenditure credit, being introduced from 1 April 2013, will replace the current regime which provides a 30% “enhanced tax deduction”.
The aim of providing the current enhanced tax deduction for R&D were twofold; increase the volume of R&D being undertaken by UK Companies and incentivise global companies to undertake R&D in the UK. To do this it must influence investment decisions.
David Woodward, R&D Partner at KPMG in the UK, said: “The problem is that it is buried in the ‘tax numbers’ - even if the decision makers are aware of the benefit, they don’t see it.”
To address this, from April 2013, the R&D Expenditure Credit is being introduced. The credit is more akin to a Government ‘grant’. It should be possible for companies to account for the Expenditure Credit as income, rather than ‘below the line’ as tax relief – increasing visibility. In addition, there is a big benefit for a company with tax losses. Under the current regime, there is no immediate benefit from the enhanced deduction if you have tax losses because you won’t be paying any tax. Under the new regime, the credit can be convertible into ‘cash’.
When originally announced, the rate of the new credit was 9.1%, the same effective value as the previous 30% enhanced tax deduction. However, the R&D Expenditure Credit, will now be payable at a rate of 10%.
“This is fantastic news for the multitude of innovative UK business undertaking R&D, as well as being a real incentive for Global business to look at the UK as a potential home for their R&D activities”, continued David Woodward. “KPMG carry out an ‘Annual Survey of Tax Competitiveness’. In the recent 2012 survey the UK was rated No1 against key competitors, in part reflecting the recent reduction in the Corporation Tax Rate.
“However, many respondents referred to the specific reliefs for Innovation and R&D providing real incentive to locate in the UK. For me, the overall message is clear. The UK is a great location for innovation.”
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.