The Chancellor has confirmed an “above the line” tax credit to encourage research and development activity, along with a raft of tax reliefs for the creative industries.
The move will allow R&D departments in larger companies to recognise the benefit of the incentive in their own budgets, rather than as a reduction in tax for the company as a whole.
This is expected to encourage greater investment in R&D and will mean companies more readily take it into account in deciding where to locate R&D activities.
As previously announced, the government will consult on the detail, which is due to be published today, and will ensure that SME R&D incentives are not reduced as a result of this change.
Anne Fairpo said: “The above the line credit is useful to larger companies in particular, where the value of the R&D credit isn’t always seen in the R&D department, as it’s a tax item. Ensuring it’s related to the R&D costs in the accounts would help here; the above the line credit would also have to be repayable (otherwise the auditors probably wouldn’t allow it in the accounts of a loss-making company).”
However Frank Buffone, head of R&D tax incentives at Ernst & Young, said the announcement of a minimum tax credit rate of 9.1% before tax still falls short of other countries such as Ireland and France, but added: “However combined with the surprise extra one percentage point cut in the corporate tax rate, the Chancellor will be betting on the overall package being an attractive proposition.”
Creative industries relief
Osborne stated his intention to “turn Britain into Europe’s technology centre”, starting with digital content.
Finance Bill 2012: Corporation tax overview
Technical information on these measures are set out in tax information and impact notes (TIINs) in HMRC's Overview of Tax Legislation and Rates document (1.2Mb PDF download). To find the details quickly, search for the folling TIIN references:
Research and development (R&D) tax credits - 2.26
Corporation tax reliefs for the creative sector - 2.27