The Scottish government will “extend and focus” research and development (R&D) tax relief in the event of a 'yes' vote on independence later this year.
Brian Williamson, managing director of R&D tax relief specialists JumpStart, met recently with John Swinney MSP, cabinet secretary for finance, to discuss the government’s intentions relating to R&D.
JumpStart is solely focussed on R&D tax relief so Williamson was concerned about any shifts in the coming months and looking for a commitment to pass on to clients. Rewarding innovation is often seen as a short-term cost with long-term benefits, but Williamson argued R&D tax relief was an economic lever that could help the government balance the books.
While Swinney admitted that nothing was concrete, he said there was not only scope to use these financial levers to continue to stimulate innovation, but also to "extend and focus" R&D tax relief to achieve better results.
“Swinney said they’d be happy to listen to any proposals we had from our experience about how this would happen in a post-independent Scotland,” Williamson added.
Swinney will be writing to Williamson with the commitment so that he can distribute the letter to clients and provide some comfort.
Williamson said: “R&D tax relief is a bit like an IT investment plan: it’s not something you can just do a bit of and pull back from. You’re on a train that’s hard to get off from. So it was really important for our clients to know that this is part of a long-term strategy to promote and stimulate innovation.”
Without wanting to be the benefactor of two feuding parties, Williamson added that he would be writing to George Osborne for a similar commitment from Westminster if the ‘no’ vote wins.
“If this is an advantage of an independent Scotland, you might want to show the advantage of ‘Better Together’ and stimulate some commitment from the government,” he said. “I don’t mind if they out bid each other in the process, as long as our clients get the benefit.”
Williamson said the latest figures from HMRC indicated that of the claims for SMEs that were submitting for R&D tax relief, JumpStart submitted 39% in Scotland, and to a lesser extent in England.
A recent example of this was Kays of Scotland, who recently started a five-year deal with Jumpstart, who are supplying granite curling stones to the Winter Olympics in Sochi.
Donald Macrae, managing director of Kays, said: “Our company has developed over a long period and we run a very rigorous internal product quality process. However, the technical competency displayed by Jumpstart's technical analyst, who took us through the whole process, was excellent.
“We were amazed to discover we now have this opportunity for our business to recover funds and we are all looking forward to working with Jumpstart again in the future.”
On how accountants can make use of R&D tax relief, Williamson said there were four key ingredients: Understanding the mathematics, the rules or HMRC guidelines, the technology and then how to use all these ingredients together to interpret.
He added that the important thing was collaboration and being able to understand the value of what each person brings to the process.
“What we really valued was the depths to which a tax expert can advise on the priority and structure of R&D. Understanding and respecting each other is key for us,” Williamson said.
On tax generally, if Scotland gains independence, Williamson said that short of knowing the choices, when it comes to the tax regime there’s a fear that Scotland could end up in a situation where the government is forced to do things quicker just to balance to books.
“Most of our clients are saying there’s insufficient information to make a judgement, because we’d be asked to judge on the aspects of where the argument is at the moment, which is conceptual. It’s too early from a financial perspective.”
Last month tax experts predicted independence will cause more complications for businesses and tax officials on both sides of the border.
On income tax Sarah Walker, deputy director and head of devolution team at HMRC, told the Scottish parliament’s public audit committee that the new Scottish tax rates would feed into the PAYE and self assessment systems.
“Clearly if there’s a different rate in Scotland compared with the rest of the UK then the risk it faces for compliance will also have to take into account that there is now an incentive for people potentially to want to be classified on one side or the other side of the border,” Walker said.
How do you think the tax regime in Scotland will be affected in the event of a ‘yes’ vote in August? How will it impact your business or clients?