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Car manufacturers push for tax credit reform

UK car manufacturers are pushing for reforms to tax incentives for R&D spending, claiming that an “above-the-line system” could boost the economy.

According to a report published by the Society of Motor Manufacturers and Traders on 7 November, allowing companies to claim the credit against corporation tax payments rather than paying later would increase investments in R&D by nearly £390 million per year. This, it suggests, is a conservative estimate.

This spending could create more than 7,000 jobs and an increased economic output of nearly £665m per year, says the report. The manufacturers therefore argue that the net value of reforming the system would come in at three times the extra £205m cost to the exchequer.

The businesses consulted for the report—which include Jaguar Land Rover, Lilly UK and Williams Grand Prix Holding—say moving to an above-the-line system would have a “much greater impact” on their decisions about how much to spend on R&D and where to spend it.

Similar systems operate in Canada and France.

“In absolute terms, the UK compares unfavourably with other countries vis-à-vis the amount of direct and indirect support it provides to business,” says the report, compiled by PricewaterhouseCoopers. “UK businesses receive the equivalent of approximately 0.12% of GDP in direct and indirect support, which is considerably lower than many other countries (e.g. United States, Japan, Canada and France).”

The manufacturers suggest that the current system fails to act as an incentive to international firms since they will simply be taxed by their host countries for their R&D spending in the UK, they argue.

They also say the financial rewards are not always reflected in future R&D spending since the credit is calculated and managed in finance departments rather than R&D groups within companies. Moving to an above the line system would help R&D teams plan their budgets with more certainty, encouraging more spending.

The Treasury recently closed a consultation on changes to the tax credit scheme, which mooted such a system. Industry is hoping to see this reflected in the government’s announcements on growth in November.

However, the Financial Times quotes a Whitehall source as saying they should not expect “significant change”.