IT industry issues from Intellect - read our blog...
Politics, life after the reshuffle and the credit crunch
Concept Viability: Early engagement with industry
21/03/2007
Commenting on the Chancellor's Budget report, Neil Pamplin, tax director at Grant Thornton, commented: "Mr Brown's last budget would appear to be good news for the UK technology sector but, as usual, the Chancellor could not resist tinkering. There are some unpleasant surprises behind the headlines. The increase in R&D relief and in the numbers of companies that will potentially qualify is to be applauded. It is unfortunate however that the EU straightjacket will not allow this to be extended to real cash credits. We are also disappointed with the further erosion of Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) reliefs. However, potentially the biggest cost will be felt with an increase in small company corporation tax rate and restrictions to capital allowances." John Higgins, director general of Intellect, the UK trade association for the IT, telecoms and electronics industries commented: "The proposed increase in R&D tax credit for large companies is a baby step, rather than a giant stride: it is unlikely to have any real impact on UK businesses. R&D is fundamental to the success of UK’s knowledge economy, but we lag behind our international competitors in terms of R&D spend. Although the tax credit is just one factor for companies deciding upon R&D projects, it can still act as a very real incentive. To use the tax credit to really attract multinationals to undertake R&D in the UK, the chancellor needed to increase it to at least at least 150%." Stephen Quest, tax partner at Grant Thornton commented: Corporation Tax: "Despite the headlines, the overall rate of corporation tax has not been cut but redistributed. The beleaguered manufacturing sector will be hit hard by higher taxes to fund a tax reduction for service sector companies resulting in no overall benefit to UK plc." The new rates effectively kick-start the process of modernisation of the capital allowance system, updating its post-war connotations and placing the focus firmly on future investment. Brown's corporation tax cut from 30p to 28p is welcome but late and still not competitive enough. UK corporates are still operating within a tax regime which is two and a half times the rate of Ireland, three times more than the EU average and less competitive than Israel and several Asian economies."
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