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 John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
In trying to deal with the points that the hon. Gentleman raised, I shall, for the benefit of the Committee, briefly discuss the aim of the clause.
The current tax rules for research and development allow relief only when expenditure is taken to the profit and loss account. When it is added to the cost of an asset, relief is given over a period of years only as the expenditure is written off. The clause permits an immediate deduction to revenue expenditure on research and development where the expenditure is added to the cost of an asset and not taken to the profit and loss account. By ''immediate deduction'', I mean a deduction that is given when the expenditure has occurred. That is the effect of clause 53, and it needs no extra words.
The extra words proposed in the amendment may cut across some of the necessary conditions for a research and development deduction. By turning what is a permissive rule into a mandatory one, the amendment would bypass the conditions for obtaining relief: the expenditure must be related to a trade, must be directly undertaken by the trader or be on his behalf, and should not include payments for R and D rights.
The arguments advanced by the CIOT are based on a complete misunderstanding of the clause. The intangibles asset regime is not supplied in the clause. We are introducing the change because companies adopting international accounting standards will find that some expenditure that they could have taken to the profit and loss account under UK accounting rules would have to be added to the cost of the asset instead. That would delay the deduction and any consequent claim for enhanced expenditure under the R and D tax relief regimes.