R&D is vital for growth

DAVID TAYLOR, research and development specialist with KPMG in East Anglia, argues that now could be the time to invest in R&D

IN 1876, the US was in the grip of the Long Depression – a six-year slump triggered by the failure of a large bank, a horse flu epidemic, the adoption of the gold standard, fires across the Midwest and the collapse of the Vienna stock exchange.

With companies folding, the late 1870s seemed a perfect time to slash costs. Instead, Thomas Edison built the world’s first industrial research lab in New Jersey. Within three years, he had patented the first phonograph and commercially launched the incandescent light bulb, laying the basis for General Electric.

The 1930s saw the Great Depression, and the recovery from this came in part by the fact that industrial investment in R&D tripled in real terms, making it the most technologically progressive decade of the 20th Century.

The 1930s gave us the Golden Gate bridge, nylon, polystyrene, synthetic rubber, the jet engine, the television, instant coffee and the Volkswagen Beetle. They also inspired a Japanese textile machinery company called Toyota to make its first car.

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Tough economic times can be the mother of invention – and invention can help steer an economy back to growth.

Many businesses in this region are involved in R&D on a daily basis and yet many local companies are leaving money on the table by not claiming valuable R&D incentives.

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R&D has a much wider definition than many people think; you might be eligible for tax benefits and not realise it!

There are currently two rates of R&D tax relief, one for larger companies (130%) and one for Small- and Medium-Sized Enterprises (175%), which can help reduce your tax payments and increase cash flow (loss making small business can exchange some of the loss for payable credits).

Figures from the exchequer reveal that in 2008/09 the value of the relief was around �930million going to 8,350 companies. We recently worked with one local technology company in East Anglia to secure a �1.5m R&D claim.

The R&D tax relief scheme is a key element of the Government’s growth strategy to improve long term productivity in the UK. HM Revenue & Customs has issued a consultation document which has announced the Government’s intention to keep the schemes broadly unchanged, but which will review the support which R&D tax credits provide for innovation.

This is a positive move, now more than ever it is important that companies can make long term investment decisions with confidence that important incentives like R&D tax credits will continue.

Shrewd management in tough economic environments is not all about cutting costs. Innovation in turbulent times may be risky, but the rewards can be immense.

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