Columnist

R&D tax breaks make UK more attractive

The idea that the tax man could stimulate innovation used to be given short shrift in Britain. The first ever R&D tax credit scheme didn’t appear here until 2001 – about 20 years after Ronald Reagan introduced similar measures in the States - and even today the take up has been surprisingly tentative.

In my experience the overall tax situation in the UK has in fact improved markedly in recent years. That change has led me to cancel plans to locate a part of my business in Switzerland instead of our home base in Manchester.

In terms of R&D relief, you can now save up to 31.25 per cent of every £1 spent on research and development through tax relief aimed at supporting innovation in British companies. The definition of what constitutes R&D activity is broad and can go much wider than the obvious research streams.

My business which is AIM-listed, operates through 270 High Street locations in the UK and Europe, and has licensing arrangements in the USA and New Zealand. The relocation to Switzerland was planned ahead of a £2 million investment programme to develop new software and other intellectual property to develop our online web-to-print offer.

My business was stuck between a rock and a hard place as to whether the new IP should be domiciled in the UK or abroad – balancing shareholder, family and the right thing to do.“ In the end, the reduction of UK corporation tax coupled with the significant enhancement of R&D Tax Credits persuaded me to abandon the move.

Our R&D spend has been focused on bespoke software for its new Templatecloud service – launched earlier this year with the intention of creating the world’s largest supply of online, editable graphic designs.

We’re in an entirely different universe from the one entrepreneurs operated in a few years back where the Treasury refused to accept that policy makers could have any effect on innovation. For years there was a fatalistic attitude that innovation is not amenable to government action. But I know from personal experience that one direct way to influence innovation is through the tax system, and in particular by offering tax breaks for business investing in R&D.

Most economists would agree that while technological innovation must be at the heart of growth and recovery, the market still needs incentives. That’s because most of the benefits of invention spill over to other firms who can copy the new idea without having to pay the upfront research costs. Without tax incentives, there’s a real danger that too little will be spent on R&D for the health of the economy as a whole.

This was posted in Bdaily's Members' News section by Tony Rafferty .