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Government should keep R&D tax credits, says CBI

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The CBI has called on the government not to consider axing the research and development tax credit scheme as a way of saving money.

There are worries that the scheme may be among a number to be dropped or curtailed in this year’s Budget as the Treasury looks to reduce the public finance deficit.

The scheme has been criticised in the past for its complexity, and this may tempt the government into removing it from the portfolio of business support funds.

However, the CBI argued that the R&D tax credit is now much improved and easier to access, and that any decision to allow it to wither would be detrimental, especially during a recession.

The tax credit allows companies to deduct up to 175 per cent of qualifying expenditure on R&D activities when calculating their profit for tax purposes. SMEs can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the HM Revenue & Customs.

Pointing to the results of a poll carried out among firms using the credits, the CBI said that businesses doubled their savings on R&D under the scheme between 2005 and 2008, and that abandoning it would send all the wrong signals.

Specifically, the survey found that businesses rate every aspect of the tax credit more favourably than they did three years ago.

Most companies’ claims have been met in full, and 90 per cent intend to claim it again.

Between 2005 and 2008, average savings delivered by the R&D tax credit doubled from 4 per cent to 8 per cent.

Some 37 per cent of firms have increased R&D as a result of the credit, up from just 18 per cent in 2005.

Though one criticism was that, while the quality of HMRC’s advice and handling of claims has improved considerably, the cost of making a claim remains too high.

The CBI concluded that, in a recession, it is even more important that firms are able to invest in new ways to compete so they are better placed once an upturn comes.

Given that the benefits of R&D take time to materialise, the CBI went on to urge the government to think long-term, keep the incentive and continue efforts at improving the way it works.

Richard Lambert, the CBI’s director-general, said: “As our economy seeks to re-balance over the months ahead, the government must recognise the value of the R&D tax credit and commit to retaining it and encouraging more firms to invest in research and development.

“It should also go further by building on its success, extending the rate and range of credit, enabling more companies to apply and covering more of their associated overheads.”

Mr Lambert added: “All of our major competitor countries have and value such a scheme. Losing the tax credit now would be a real blow and could seriously affect Britain’s overall R&D investment.”