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RECESSION-HIT WELSH FIRMS “MISSING OUT” ON R&D TAX REBATES

With the recession biting ever deeper, thousands of Welsh companies are missing out on tax windfalls worth millions of pounds which would mean they could invest far more in research and development than they currently do, according to a South Wales tax expert.

Broomfield & Alexander tax director Leighton Reed said that at a time when every penny counted, surprisingly few companies understood rules under which they could qualify for tax relief on R&D expenditure, and were missing out as a result.

His comments come in the wake of a recent report from the Office for National Statistics which showed that only £227m was spent on R&D in Wales in 2007.

Whilst investment in R&D by companies and the numbers of people employed in such roles was on the increase in the UK as whole, in Wales, investment and associated jobs had been static for the past three years.

According to the report, UK Business Enterprise Research and Development 2007, of all the regions of the UK, only Northern Ireland spent less than Wales on R&D that year, whilst regions such as the North West, the East and South East of England surged ahead with spends of up to £4bn.

Mr Reed said that R&D helped companies improve profits and grow by creating new high value-added products, processes and services. The definition of what qualified as research and development was broad enough to encompass a wide range of activities, and claims could potentially made up to two years after the expenditure was incurred, he added.

“Both these facts are little known, and in themselves could result in a significant amount of money being returned to companies if they acted now,” said Mr Reed.

Small businesses could qualify for an enhanced tax deduction of 75% on qualifying expenditure, he explained, and might also be eligible for an R&D tax credit – an incentive at the heart of the Government’s strategy to raise levels of business investment in R&D and encourage business innovation.

He said that the definition of what qualified as R&D expenditure was quite complex, but two key tests applied.
 
“The first is whether a company is trying to do something which involves having to develop scientific or technical knowledge which isn’t readily available in the marketplace, and the second is whether a firm has had to overcome scientific or technological uncertainties which are not easily resolved by a competent professional in the field.

“If a company can answer yes to these questions, they may be on their way,” he said.

“Following the publication of the Office for National Statistics report, concern was expressed by business leaders that Wales’ prosperity was under threat, and the lack of investment in R&D was creating an obstacle to job creation,” said Mr Reed.

“With many companies approaching their year ends, we would strongly urge both manufacturing and service firms to examine what they have spent in the past two years which might qualify for an R&D tax rebate.

“They might be pleasantly surprised, and open up new streams of income which could help their profitability and create jobs.”

 

Date: 23rd February 2009