Get cash back for innovation, says Milton Keynes tax expert

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NEW tax credit arrangements for companies could provide a boost for loss-making research and development in the new city.

That’s according to tax partner Gary Telford, of the Milton Keynes-based PwC, who is urging manufacturers to take full credit for their innovations.

From April 2013, the government is planning to introduce a new ‘above the line’ research and development (R&D) tax credit that will be available to larger companies (more than 500 employees) regardless of whether they are making a profit or loss. The proposals are currently subject to a wider consultation and views from businesses are being sought by June 29 this year.

For some manufacturing firms that have been used to making a loss, such as those investing in the research and development of emerging technologies that have not yet made it to market, tax relief may not have been claimed previously. Such businesses will be able to claim a repayable tax credit to help balance the books even before their innovation goes into production.

Mr Telford, who is based in Midsummer Boulevard, said: “Larger firms in the region are big spenders when it comes to R&D and they deserve to be able to take the credit for their investment. From April next year, it is proposed that even if they are making a loss they will be able to claim a repayable tax credit. For tax purposes, this means their R&D spend can increase the company’s profits before tax.

“For those investing large sums in R&D each year, the tax credit repaid to the business could be significant and this is likely to encourage some engineering teams to consider claiming R&D tax relief for the first time.”

Larger manufacturing businesses are not the only ones to benefit from the recently announced changes to R&D tax relief. Small and medium-sized businesses (up to 500 employees) can now benefit from tax relief of 125 per cent on their R&D spend and the limit imposed on the level of relief payable, based on the company’s Pay As You Earn/National Insurance contributions, has been removed altogether.

Gary Telford added: “Small and medium-sized companies are already able to claim R&D tax relief in the form of a credit even if there are making a loss, but now this is not dependent on how much PAYE/NIC they pay.

“This is good news for smaller, knowledge-based businesses that typically have a lower headcount but still invest significant sums in R&D. These businesses are creating jobs for the future and can now literally take full credit for their investment.”