The need to focus tax incentives for economic growth

Gary Collins, Tax Partner and Head of Innovation Incentives, explains how there are a lot of mixed messages about the support available.  

Working nationally and internationally, his focus is on innovation, and he advises clients on incentives delivered through the tax system such as research and development (R&D) tax credits and the Patent Box regime — designed to encourage companies to keep and commercialise intellectual property in the UK.  

Make tax incentives encouraging  

Collins says: “When we talk to clients, at one extreme are people who are fully aware of what support exists but are not utilising it, which defeats the objective of having incentives if companies aren’t encouraged to use them.”  

“At the other extreme are those who are making, or want to make claims, but feel the regimes are difficult to navigate and need support. Even amongst those companies, there is a lack of clarity on the policy objectives.”  

He asserts that the fundamental problem seems to be that the regime around R&D does not align with any other policy initiatives. “It basically exists to provide money to support scientific and technological innovation, but it doesn’t say what outcome it is seeking to achieve.”  

For example, he explains: “Most leading economies around the world have, within their tax regimes, an incentive system which is very much focused on net zero, or ‘green’ policies, but our tax system currently doesn’t — although all the tools are in place.”  

Instilling clear objectives  

Recent rule changes have been proposed to encourage startup companies to undertake R&D activities in the UK which implies the Government is keen to develop jobs within the innovation space.  

“That is a good objective and one we can identify with, but it is more implicit than explicit,” he says. “A lot of publicity around the R&D tax regime has recently been quite negative because it is perceived there is considerable abuse of the scheme whereby some taxpayers are making claims when they are not entitled to do so.”  

Collins adds: “This whole issue around abuse and avoidance will never be completely eliminated, but a good starting point would be to have clarity over the objectives. The benefits of the regime could then be targeted at particular businesses and the scope for dubious claims thereby reduced, as well as hopefully producing greater payback from the support by incentivising more innovation.”  

Looking ahead  

In the recent Spring Budget, incentivising innovation was referenced in several announcements, most notably on R&D tax reliefs, but also within the support for emerging digital technologies and the reforms to audio-visual tax reliefs.  

Collins concludes: “It was reassuring to see a Budget that was full of references to the importance of innovators and the creative industry in developing wealth for our nation — and that recognises a need for the state to have a role in supporting these activities.” 

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This article originally appeared online on www.businessandindustry.co.uk, you can view the original article here.   

All statistics mentioned were taken from the latest Mazars C-suite barometer, an annual survey conducted with C-suite executives from across the world.