I am not attracted to amendments Nos. 25 and 26. In fact, they represent real danger for small and medium-sized companies with regard to the entitlement to the 50 per cent. addition. If there were an opt-out, they could come under pressure, because the 50 per cent. is given in return for what they undertake themselves. Subcontractors may be attached to a larger company, which will be entitled to the larger company benefits.
The hon. Member for Kingston and Surbiton referred to what happens when companies grow. The amendments would allow a small or medium-sized company to opt out of the tax credit for those sizes of company and be treated as a large company instead. It is far from clear why a company would want to opt out of receiving 50 per cent. in favour of receiving 25 per cent.
Under our proposals, a small or medium-sized company will be able to claim the existing credit for a company of that size on its own R and D and an extra deduction of 50 per cent., rather than the 25 per cent. that will go to the larger companies. There will be a possibility of a cash payment if the venture is loss making. If the company opts out, it will lose the cash payment option and its tax credit is reduced from 50 to 25 per cent. In addition, a small and medium-sized company, having protected its position vis-a-vis the 50 per cent., may still be able to claim the large company credit for expenditure on work financed by someone else—for example, subsidised work or work by a subcontractor for a large company.
The proposed new paragraph in schedule 12 is headed ''Regulatory simplification,'' but it is hard to see what the simplification is or what other benefits it would allow. It would add to the length of the Bill,
create new uncertainty over the status of the small and medium-sized company and could cause serious problems. Hon. Members may find it easy to imagine a contract being drawn up between a large company that wants access to a tax credit and a smaller company that would receive a tax credit at a greater rate, that would benefit to a greater extent and that might come under pressure for contract reasons to opt out of the better entitlement. Therefore, I am not at all attracted to the amendment.
The hon. Member for Kingston and Surbiton suggested that the Bill would make the rules for small and medium-sized businesses too complex. He asked how a business would move from one category to another and suggested that it would be simpler to allow them to choose. The Government and officials at the Inland Revenue and the Department of Trade and Industry have put a huge amount of effort into discussing with small and large companies how to make the rules as simple as possible, while allowing benefits to flow from that.