HMRC excel at building better mouse traps.
Although it's only part of innovation, investing in R&D is pretty important for UK manufacturers.
Their R&D spending accounts for 75% of all UK business investment in R&D. And yet, the tax man has come along, suggesting that true R&D can't involve production, and so refusing to give tax credits to legitimate R&D claims.
Since early 2008, HMRC have been using a fairly strict - and incredibly appalling - interpretation of government guidelines on what does and doesn't qualify for the R&D tax credit. In particular, HMRC have used the following rule to argue that any R&D that results in anything being sold is production activity and therefore does not qualify:
"Activities which do not directly contribute to the resolution of scientific or technological uncertainty include... the production and distribution of goods and services”
My question for HMRC: why have give businesses an R&D tax credit if not to help them finance R&D to develop new products, processes and services. It's what the government's guidelines say:
“A project which seeks to, for example:
-
- extend overall knowledge or capability in a field of science or technology; or
- create a process, material, device, product or service which incorporates or represents an increase in overall knowledge or capability in a field of science or technology; or
- make an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes; or
- use science or technology to duplicate the effect of an existing process, material, device, product or service in a new or appreciably improved way (e.g. a product that has exactly the same performance characteristics as existing models, but is built in a fundamentally different manner),
will therefore be R&D.”
Creating products and services is inherent to three of the four examples.
No UK-based manufacturing company could survive if it conducted R&D to create a product or service (that represents…etc…) but was not intended or did not have the prospect for supply to customers.
BIS and HMT: sort out the tax man...UK manufacturers have a recovery to invest in.
(Hat tip to Ben Sampson at Professional Engineering for the story and the pic.)