December’s Autumn statement underlined the consistent and stable tax environment the UK currently enjoys for innovation and the creative industries. This is in stark contrast to what is happening on the other side of the Atlantic!
UK R&D Tax Credit
What the UK is doing well
The good work in the UK really started over a decade ago when R&D tax credits were first introduced. The UK R&D tax credit scheme has since been enhanced or expanded several times, and does not appear to be leaving us any time soon.
Add to this the other tax incentives that have been made available to the creative industries. These began in earnest in 2007 with Film Tax Relief, and more recently have been expanded to include tax reliefs for animation, high-end television and video games.
George Osborne’s latest announcements include consulting on introducing a regional theatre relief from April 2015 and enhancing film tax relief from April 2014. KPMG’s recent Annual Tax Competitiveness Survey recently found the UK to be one of the most attractive countries from a tax perspective, although Luxembourg, Ireland and Switzerland have been closing on the UK’s lead over recent years
It is a positive and improving environment in which to operate with sharper focus on research and development tax in UK..
What this tax policy achieves
The driving force behind these government incentives is to nurture growth in the economy through job creation and by helping companies to invest and grow profitably. This consistency in rate relief also enables better long-term business planning.
USA R &D Tax Credit
Is something rotten in the United States?
Let’s start by recognising that America is without doubt a global powerhouse of innovation. According to The OECD 2.77% of the US’s GDP was derived from R&D related activities at the last count, compared to 1.77% in the UK. Silicon Valley for instance is synonymous with hi-tech innovation and we hardly need list American corporates with a reputation for ground-breaking design in systems and products.
“What’s wrong in America then?” you may ask!
Well the US R&D tax credits scheme, which has been around since 1981, has always been temporary. It has expired and been rejuvenated eight times and is set to expire again. This instability makes it very difficult for businesses to plan ahead. Companies are forced to assume tax credits won’t be available to them, and as a consequence some larger companies move their research programs and jobs overseas to more favourable tax environments, for example R&D intensity has more than doubled in China over the past ten years.
Last time the credit expired – back in 2011 – it was only brought back retrospectively until December 31st 2013, which had the knock on effect of forcing many companies to distort their corporate reporting in order to receive the benefit of the credit. This was not ideal for investors, analysts or indeed the companies themselves.
Moreover, when the scheme was introduced it was the world’s most generous R&D tax incentive for business but according to the Information Technology and Innovation Foundation (ITIF) it is now down at no. 17. The international landscape for attracting innovation is significantly more competitive.
Make the most of R&D tax credits available to you
This contrast in political attitudes towards these business tax incentives only goes to show how valuable they are. If you are innovating in the UK – even if your innovations are confined to a back-office function – you should speak to an R&D tax consultant to see if you can benefit. Almost any industry can qualify for R&D Tax Credits, from restaurants to digital marketing agencies as well as all the more obvious scientifically focused companies in between. Right now it’s a great time to be innovating and/or working in the creative industries – just make sure you are claiming all the tax relief your business is entitled to.