Schedule 31 - Tax relief for expenditure on research and development
Finance Bill
7:30 pm
Mr Howard Flight (Arundel and South Downs, Conservative)
I beg to move amendment No. 136, in
schedule 31, page 362, leave out lines 32 and 33 and insert -
'(3) Omit paragraph (a) (person spending less than 20% of total working time on relevant research and development).'.
In determining whether expenditure on salaries qualifies as R and D and is hence eligible for the enhanced tax credit, if a director or employee spends more than 80 per cent. of his total working time on relevant R and D, all the staffing costs related to him are treated as attributable to relevant R and D. That rule was a helpful simplification of the legislation to encourage research, and it avoided compliance costs by identifying minimal amounts of expenditure that would not qualify for tax relief. Equally, costs were ignored if the employee spent less than 20 per cent. of
his time on R and D. The ability to round 80 per cent. up to 100 per cent. and to ignore insubstantial amounts of time was a useful deregulatory simplification, and its removal from the schedule will increase compliance costs and, in a sense, make the relief less generous.
Amendment No. 136 would retain the 80 per cent. rule but repeal the rule that prevents time of less than 20 per cent. counting for relief. The 20 per cent. minimum, about which one might argue either way, is intended to protect the Revenue against small claims, but there is already a de minimis level in the legislation. If taxpayers want to take advantage of the incentive, they should be able to do so. The 80 per cent. rule was a simplification measure that ensured that taxpayers did not have to calculate small amounts of central management time incurred by an R and D director that would otherwise be disallowed. In short, are not the proposals in the Bill overly complicating a rough and ready formula that had actually worked very well?