Mixed reception for new R&D tax credit

The government's decision to redefine the rules governing research and development (R&D) tax credits has been welcomed by some in the high-tech sector, but others have claimed that the changes don't go far enough.

In Wednesday's Budget, Chancellor Gordon Brown announced a consultation into the current guidelines on R&D tax credits. He also said that they will be extended to cover spending on cutting edge software for research and development purposes.

"Having launched the successful R&D tax credits last year, we are - following representations from the CBI and others - announcing improvements in the credits' scope and value. We will consult with business to improve the definition of qualifying research to ensure that it keeps pace with technological developments," explained Brown.

These credits allow firms to deduct their spending on research and development from the amount they pay in tax on their profits, and also permit them to surrender any losses they make on R&D to the Exchequer in return for a cash payment.

Intellect, the trade body that represents the UK's IT, telecoms and electronics sectors, has been lobbying for a change in the R&D rules which it has claimed are confusing. It has welcomed the Chancellor's announcement.

"We are delighted that the government has listened to our views and we look forward to working with The Treasury, DTI and Inland Revenue so that the R&D definition is both comprehensive (for the R&D undertaken by our members) and clear," said Tom Wills-Sandford, campaigns director at Intellect.

"Our goal is certainty for R&D decision makers. This will encourage more R&D from UK based members and attract and retain UK based R&D undertaken by multi-nationals," Wills-Sandford added.

Payment processor WorldPay, though, is concerned that the government has not also introduced tax credits to encourage firms to embrace ecommerce.

"The budget was remarkable for its failure to speak to supposedly government-sanctioned positions on electronic commerce," claimed Simon Fletcher, WorldPay's senior global communications manager, in a statement.

"For a start, whilst tax credits for corporate R&D and technology research organisations are great, there is a gaping hole where tax credits for small e-tailers should be. The Chancellor positions R&D as fuel for the engine of the economy, and he's right - but the engine itself comprises a myriad of small components that, together, are critical to the smooth running of the machine," said Fletcher.

Graeme Wearden writes for ZDNet UK