There is much talk about the effectiveness of tax reliefs. The Public Accounts Committee was very critical of HMRC’s failure to track the use of reliefs, and the spectre of avoidance always hangs over the way that some reliefs are used in practice – recent publicity about the possible misuse of Business Property Renovation Allowance is a case in point.
It is therefore comforting to be able to look at a tax relief where there are good statistics and where tax avoidance does not seem to be an issue. Research and Development (R&D) Tax credits have been with us now for over a decade and have generally been regarded as a success. Certainly the latest statistics show a consistent growth in the take up – with something like £1.7bn of tax incentives being given in 2013-14.
Digging a little under the surface reveals some interesting trends and areas where further analysis might be worth undertaking. You might expect that there would be a broad correlation between economic activity and R&D relief, but breaking the figures down by region shows some significant distortions. London and the South East have 37 per cent of the UK’s economic activity but 53 per cent of the value of R&D claims. By contrast, the Northern Powerhouse of the North West and Yorkshire has 16 per cent of economic activity but only 9 per cent of the value of claims.
Are these differentials simply a reflection of the nature of the activities carried on in the different regions? Is there proportionately more research and development carried on in the South? It could be, but given the very wide scope of the relief – it is not just for men and women in white coats working in high-tech labs - it could be that the messages about the availability of reliefs get lost in the ether the further one gets from London. If that is the case, there is a message for all of us – HMRC, industry and the profession – about the need to communicate positive messages.