136/01
4 December 2001
Designs for innovation - launch of the R&D consultation
The Government today launched 'Designs for Innovation', the consultative note on designing an R&D tax credit for large companies. This provides details on three options for taking forward a volume-based R&D tax credit.
Launching the consultation, Chancellor Gordon Brown said:
"An R&D tax credit for large companies will play an important role in boosting business R&D expenditure. R&D tax credits provide businesses with an incentive to increase R&D spending, while leaving the decisions on individual
projects in their own hands."
Patricia Hewitt, Secretary of State for Trade and Industry, said:
"Increasing business expenditure on R&D is vital if we are to succeed in driving up productivity and competitiveness. Business, unions and other interested parties must continue to play an integral role in designing a credit that will provide the best possible incentive for new R&D."
The three options in 'Designs for Innovation' are:
- a simple volume scheme in which the R&D tax credit is given at a single rate on all qualifying R&D expenditure. The simple volume scheme has the advantage of being simple, certain, and transparent.
- a two-tiered volume scheme in which tax relief is set at a higher rate on R&D expenditure up to a threshold, say £100m, and a lower rate on additional R&D expenditure above this level. The two-tiered volume scheme targets many medium and smaller qualifying companies.
- a baseline volume scheme in which the credit has a company specific base line, for example 50% of R&D expenditure in 2000, above which a simple volume credit is paid on R&D expenditure. No credit is paid on R&D below the baseline. The baseline volume credit would have a higher headline rate.
This document sets out the advantages and disadvantages of each approach.
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Notes to editors
Following the introduction of a research and development (R&D) tax credit for small and medium enterprises (SMEs) in 2000, the Chancellor announced in Budget 2001 that he wished to extend this idea to larger companies. A consultation document ?Increasing Innovation?, released in March 2001, set out the case for this and invited comments on two options - a simple volume credit, which rewards all qualifying R&D expenditure, and an incremental credit, which rewards only increases in expenditure.
Respondents to the consultation were attracted to a volume credit over an incremental one. Reflecting this view, the Chancellor announced in his Pre-Budget Report that the new credit, to be legislated on in Finance Bill 2002, will be volume-based.
A further consultation note ?Designs for Innovation?, published today, summarises the responses to ?Increasing Innovation? and sets out further details on the design of a volume-based credit. The note gives a preliminary compliance assessment and a full regulatory impact assessment will be published alongside the Finance Bill.
The consultative note also confirms that:
- the Government wants to target this credit at companies that undertake the R&D rather than those that finance the R&D; and
- the Government recognises the important role of R&D carried on in collaboration with universities, scientific research organisations, or charities, and so intends to make sure this also benefits from the credit.
The Government is seeking views on the three design options, including their regulatory impact. Please send responses to:
David Harris
R&D Consultation Team
Inland Revenue Policy (Business Tax)
4W1 22 Kingsway
London WC2B 6NR
To arrive no later than 18 January 2002.
In accordance with the Inland Revenue's Code of Practice on Consultations, once the outcome of the consultation is announced, we will make available, on request, responses to this consultative document, unless any respondent has asked for their comments to be treated as confidential. If you wish the whole of your comments, or your name and address to be treated as confidential, please say so when you return your comments.
The document is available on the Internet at this website and the Inland Revenue site at the address below.
External links
INLAND REVENUE PRESS OFFICE
Press enquiries: 020 7438 6692 / 6706 / 7327
(out of hours: 07860 359544)
Non-media enquiries: 020 7944 3000
(office hours only)
Government department internet sites
Further information and all published documents relating to the Pre-Budget Report may be found on the Internet at the following addresses:
HM Treasury: at this website
Inland Revenue: address below
DTI: address below
The Designs for Innovation document is available below in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website.
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