Schedule 12 - Tax relief for expenditure on research and development

Part of Finance Bill – in a Public Bill Committee at 6:45 pm on 21st May 2002.

Alert me about debates like this

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 6:45 pm, 21st May 2002

I want to come to the point about deconstruction because the hon. Gentleman is making that point with regard to one company only, as far as we know. It is a large and important company, but to make room for the difficulties of one company by making the rules for all companies complex is not a sensible approach and would risk adding distortions and increasing costs. For example, some companies would be able to claim a credit for a proportion of their rent but not for a proportion of the cost of a new building. That is clearly not right, especially given what the hon. Member for Fareham said about competing and contributory costs.

If R and D is outsourced, the company that carries out the work will qualify, so if we were to allow the principal contractor also to qualify, two payments would be made. That takes us back to the point that I was making about double credit and back to our discussion on a previous amendment about the pressure from large companies to make smaller companies opt out of their 50 per cent. to gain access to 25 per cent. Then there is the subcontracting issue, which is dealt with by virtue of the fact that the SMEs get access to the R and D work.

Work may be outsourced to a company resident in another country. It would be out of the question to allow that because it would be inconsistent with the focus of the tax credit on R and D undertaken in the United Kingdom. As I have said, it would be inappropriate for me to name the company that has recently raised several issues relating to deconstructing costs, the ratio of subcontracting and the huge importance of IT in research and development. At least one large company that has spoken to us will experience some difficulties because of the substantial contracting out of those costs.

I can tell the right hon. Member for Fylde that, although I am not attracted to amending the Bill to make room for one company, because it will make the provisions more complex for others, none the less some important issues are being discussed further with that company to try to ensure that the rules do not inadvertently exclude it from receiving R and D money to which it would have been entitled. Hon. Members must keep it firmly in their minds that the purpose of the tax credits for small and large companies is to recognise that there might be subcontracting, but to bring that R and D to the UK, so that we get the benefit. There would be no point in us funding, through a subcontracted chain, subcontractors outside the UK, because we would not get the benefit

of the R and D. The principal company will have to consider that, but in asking hon. Members to reject the amendment, I can tell the right hon. Member for Fylde that issues surrounding IT outsourcing and staff costs have been drawn to my attention by a particular company, and we will do our best to address those issues without compromising the underlying principles of the tax credits. I hope that, on that basis and having aired his points, the right hon. Gentleman will feel able to withdraw the amendment, at least for now. If he is not satisfied, I am sure that he will return to the issue in future.