Clause 26
Finance Bill
3:00 pm
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
Clause 26 places a cap of €7.5 million on research and development aid on particular projects. I have a few questions for the Minister, in order to understand the reasons behind the clause and also to ask whether it will impose an additional bureaucratic burden on firms. I will start with the second point.
I understand that there are different rules as far as the relief is concerned for research and development for small and medium-sized enterprises and larger companies. In calculating the cost of a particular project, as I understand it, under clause 26 it will be necessary for an SME to calculate the various reliefs and tax credits that it has received in respect of that project, both under the rules that apply to SMEs and those that apply to larger companies, to ensure that the cap threshold is not exceeded. Is that a correct interpretation of what clause 26 will require? Does the Minister think that that is a burden that may create difficulties?
I believe that the Treasury assessment is that this particular cap is likely to affect only 25 companies. However, given that the definition of SME is being extended—a point that I raised a moment ago—is it possible that it may apply more widely than that? In addition to the complexity, my other concern is with regard to clause 26(1), which states that:
“A company is only entitled to R&D relief in respect of expenditure attributable to a research and development project”.
It goes on to set out the limits. However, what constitutes a research and development project? I do not think that there is any further definition. If one can break up a project into different elements and define it in that way, the cap will be ineffective. Is there a commonly accepted definition of a project? If there is not, it is an ineffective clause, given what it is intended to do.
What is the Government’s intention in this area and why are they introducing the clause? I believe that it is to comply with EU state aid rules. That may not be a surprise to you, Sir Nicholas. Could we have some clarification as to precisely why the Government are introducing the cap? If relief for research and development is a good thing, why is it only a good thing up to a certain amount? I seek the Minister‘s clarification on those issues.