Debate Magazine

The Futility of R&D Tax Credits.

Posted on the 20 May 2015 by Markwadsworth @Mark_Wadsworth

From the official government statistics on R&D tax credits:
- The total amount of [R&D tax credits paid or credited to companies] rose to £1.4 bn – an increase of £150m from the previous year. The cost of support for the SME scheme rose by £170m from £430m to £600m, while the cost of the large company scheme declined by £20m from £790m to £770m.
- The total R&D expenditure against which claims were made amounted to £13.2bn in
2012‐13, an increase of 10% from the previous year.

1. The maths of the claims is tortuous, but you can easily express the value of the subsidy/refund as 10.6% of total cost/spend - £1.4 bn divided by £13.2 bn.
2. I know from experience that approx. 90% of all the R&D expenditure for which the subsidy is claimed are the wages and salaries of people carrying out the research.
3. The UK has a stupid extra tax on wages and salaries called "Employer's National Insurance contributions" of 13.8% on top of wages and salaries and this is included in the costs for which companies receive a subsidy.
4. So here's a thought - assuming that such micro-meddling is a good idea in the first place - just exempt researchers' wages and salaries from Employer's National Insurance - the net cost after tax/subsidy would remain much the same, with a modest cash flow/timing advantage to the companies concerned.
Maths lesson:
Current rules
Total R&D spend/claim £100.
Includes £10 other costs and £90 of wages and salaries incl. NIC.
That £90 = net wages and salaries of £79.09 plus £10.91 Employer's NIC.
Refund average 10.6% of £100 = £10.60.
Net cost of R&D = £89.40
Simplified system
Net wages and salaries, NIC-exempt £79.09
Other costs £10
Total R&D cost = £89.09.
I realize that my 90% is just a guesstimate and that the first few thousand pounds of a person's wages and salaries are NI-exempt, but let's not get bogged down in details.

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