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REVISED
DEFINITION OF RESEARCH & DEVELOPMENT FOR TAX PURPOSES
Following
the recent HM Treasury/DTI/Inland Revenue consultation
on the definition of R&D for tax purposes, the Government
intends to introduce a revised definition of R&D which will
apply to R&D tax credits, Research and Development Allowances
and various other measures.
The aim of
introducing this revised definition is to retain the substance of
the existing
definition, but also to
- make it
clearer what sorts of activities are R&D for tax purposes,
- help give
companies confidence in advance that their work will attract
R&D tax credits, and
- incorporate
feedback from business and other users on the current
definition of R&D.
In order to achieve
this the draft revised Guidelines which define R&D for tax
purposes
- are shorter and
easier to navigate;
- incorporate key
elements of interpretation from the Inland Revenue's Commentary
on the current Guidelines, and on other issues that have
been raised in consultation or in practice;
- replace the
current requirements for ‘novelty’ and ‘innovation’
with the need to be seeking an ‘advance in science or
technology’;
- do not include any
specific provisions affecting software or any other specific
technology;
- are particularly
aimed at making it clearer that development work is R&D
where that work represents an advance in science or
technology, including process development as well as the
creation of new or improved products, services, materials and
devices.
It is proposed that alongside revised Guidelines the Inland
Revenue will issue new guidance aimed at both tax inspectors and
companies, setting out practical details of claiming tax
incentives for R&D.
Comments
on the revised definition of R&D
The
draft Guidelines are reproduced for comment here.
Comments are sought on the following subjects:
-
Do
you believe this is a workable definition of R&D for tax
purposes?
-
Are
there any situations or cases where it is not clear what
principles would apply?
-
Are
there any changes in the revised definition - compared to the current
one and the Commentary
- which would cause you concern?
-
Currently
examples are included in the Guidelines as an additional section following
the main definition. Alternatives would include placing them
nearer the principles they illustrate within the Guidelines,
removing them from the Guidelines and including them in Inland
Revenue guidance, or discarding formal examples
completely. How should examples best be provided in
the context of a revised definition of R&D?
-
Can
you propose any other examples or situations you would like to
see covered in examples or case studies?
Comments
are sought on this draft by Friday 16 January 2004. You can either send
comments to the Government team by email (preferred) or by
surface mail to:
Dr
Nick Munn
Business Finance & Investment Unit
Department of Trade and Industry
Bay 353
151 Buckingham Palace Road
London
SW1W 9SS
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last updated: 10 December 2003
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