Leyton's response to the 2011 Autumn statement from the Chancellor of the Exchequer.
Chancellor of the Exchequer’s 2011 Autumn Statement
30th November 2011
The Chancellor, George Osborne, made his Autumn Statement in Parliament on Wednesday setting out the government’s plan to protect and rebuild the UK economy. Amongst a wide range of initiatives introduced, a number of measures are directly aimed at encouraging companies to carry out more research and development (R&D) activities. These include the:
· Investment of an additional £75 million in supporting technology-based SMEs to develop, demonstrate and commercialise new products and services;
· Investment of an additional £200 million in science, including an £80 million investment in the Institute for Animal Health and £25 million for large-scale technology demonstrators; and
· Introduction of an ‘above the line’ tax credit in 2013 to encourage research and development activity by larger companies.
In addition to details to be published next week by the government, the Prime Minister will also outline the country’s strategy to support life sciences in particular.
We at Leyton are delighted by the announcements made which are tangible results of the consultation process that took place between late 2010 and summer 2011. This is a further indication of the Government’s commitment to incentivising investment in R&D within the UK as a means to building a stronger economy. We believe the measures will have a positive impact on many businesses up and down the country.
We are also particularly excited about the ‘above the line’ tax credit to be introduced in 2013 for large companies. In practical terms, the ‘above the line’ tax credit translates into a simpler, and consequently more visible and concrete, system of tax benefit similar to regimes which are already in place in France and Canada.
Having been the main subject of the consultation in 2011, this would significantly benefit large companies or groups of companies that have been in a tax loss-making position and which have been unable to convert such losses into cash immediately. The mechanism could be akin to the current cash credit system available to SMEs, although the government has stressed the importance of safeguarding the current tax treatment for SMEs.
Clarification on exactly how these changes will be implemented and the full government response to the consultation are expected within the week. For now, we believe that the implementation of the ‘above the line’ tax credit system will render the scheme much more attractive to large companies for the following reasons:
1. Large companies or groups in an overall tax loss-making position will be likely to see the benefit of an immediate and tangible cash benefit, rather than having to carry forward a large amount of loss to future years;
2. A simplified formula will be used to calculate the tax benefit, making it possible for key technical R&D staff to budget the benefit into their future investments, hence effectively becoming an integral part of the R&D budget.
It is fascinating to see the level of changes to the UK’s tax relief system which reflects the government’s determination to reward innovation. Companies that already undertake qualifying R&D activities may have something to look forward to in these difficult times. It seems that, ultimately, tax need not be so taxing after all.
Please watch this space for further updates.