IT seeks budget tax relief for R&D

It's budget time and trade bodies are crying for tax breaks for their members – and their customers.

The Institute of Directors and Toshiba are asking the government to make tax breaks permanent for SME purchases of ICT equipment to demonstrate its commitment to British enterprise. And they want more publicity for the current scheme of 100 per cent allowances on the purchase of hardware.

Over at Intellect, the UK high tech trade association, they are focusing on R&D allowances. The association wants the effective R&D rate of tax relief increased to 10 per cent from the current 3.5 to five per cent. And it also wants the allowance for SMEs to continue.

But dealing with one more entry on the tax return may be beyond the energies of many companies that current government reliefs are designed to benefit.

Andrew Bell, technology leader at Pricewaterhousecoopers, said: "Doing a survey last year of 100 early stage technology companies, I found that 60 per cent had either not bothered or not got anything back."

In 2000, Gordon Brown introduced a scheme under which SMEs could claim up to 150 per cent of their expenditure on R&D against tax and, if they were not yet trading, could get a 24 per cent cash back.

A cut down version of this was introduced for large enterprises in 2002.

“It has been lifeblood for some companies, cutting their need for finance – or allowing them to raise more,” said Bell. “I’m puzzled as to why more companies haven’t taken it up.”

But he admitted that interpretation of R&D by tax inspectors around the country had varied. “In some industries, such as pharmaceuticals, R&D is easy to define. Software R&D is notoriously difficult.”

But tax offices are now tending to refer difficult cases to the Inland Revenue’s head office. And last week, the DTI issued a new set of guidelines for claiming the R&D allowance which will come into effect next month.