Clause 53 - Treatment of expenditure on research and development
Finance Bill (except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
2:55 pm
Mr Howard Flight (Shadow Chief Secretary To the Treasury, Economic Affairs; Arundel and South Downs, Conservative)
I beg to move amendment No. 98, in
clause 53, page 59, line 15, at end insert
'such that deductions are available as and when the expenditure is incurred.'.
Mr. McWilliam, I welcome you to the Chair this afternoon. It has been assumed that the purpose of clause 53 is to put relief for research and development on an incurred basis, which was contemplated and referred to in the Budget press release. However, it is not entirely apparent that that purpose is achieved by the clause, which disapplies intangible fixed assets legislation. There seems to be an underlying assumption in the clause that, in the absence of that legislation, a deduction is obtained on an incurred
basis, which is not necessarily always the case. The Minister will be aware of the case of Gallagher v. Jones.
Outside the intangible fixed asset rules, generally accepted accepting practice is imposed, as distinct from the incurred basis. As a result of clause 50, which we debated earlier, GAAP will be in respect of IAS in companies that prepare accounts in accordance with IAS. It seems that clause 53 will not achieve anything. Our amendment is designed to address that problem and is consistent with some of the points raised by the Chartered Institute of Taxation. It goes further, and states that it is unsatisfactory to reintroduce the traditional tax capital revenue distinction, which is well known to be imprecise in its effects, in clause 53. While that may be the case, the distinction is currently ingrained in British tax law, and the Economic Secretary may comment on the difficulties faced in applying the test, but we still feel that an amendment is necessary.
The related point has been made as to whether the intention is to preserve existing UK GAAP in the timing of deductions for research and development expenditure, or whether such deductions should be made on an incurred basis, the effects of which would not be the same, but are not that different.