U.K. R&D tax changes could reverse slump - Business & Finance

Electronic News, May 6, 2002 by Alex Mayhew-Smith

Changes to R&D tax outlined in last week's budget could help to take the electronics industry out of its slump and create more high-tech jobs in the United Kingdom.

"This new relief should help to encourage investment in a key sector of the U.K. manufacturing industry and in turn help boost the recovery of the global electronics industry," said Mark Grant, electronics industry manager at financial firm KPMG. The organization said that while companies may not increase overall worldwide spending on R&D in the current economic climate, they do have flexibility in where they spend their money.

"These measures should help the U.K. increase its share of global R&D expenditure," KPMG said.

Other measures in the budget included tax changes affecting small businesses:

* R&D tax credit for large firms now complement the existing scheme for SMEs. This will provide a headline 25 percent rate of reduction for qualifying R&D expenditure against taxable profits. The net benefit is 7.5 percent. Organizations had been hoping for a 10 percent net benefit.

* The introduction of tax relief for intangible assets, including IP, to be backdated to the beginning of April.

* Corporation starting tax rate reduced from 10 percent to zero. An estimated 150 companies with taxable profits of less than [pounds sterling]10,000 ($14,574) will no longer pay a corporation tax. The small companies' rate will be reduced by 1 percent to 19 percent, affecting an estimated 335,000 firms.

* The DTI is to consult on a national strategy for startups

* A change to the way foreign companies pay tax for their subsidiary businesses based in the United Kingdom. Capital will be attributed to a U.K. branch for tax purposes based on the capital it would need to trade as an independent firm.

Alex Mayhew-Smith is an editor for Electronics Weekly, a sister publication of Electronic News.