Research and development red tape is holding back entrepreneurial Birmingham businesses, according to an accountancy firm.
Tax partner Terri Halstead from the Birmingham office of Haines Watts, said Government moves to encourage R & D are hindered by a “time consuming and complex” tax system.
A company that has less than 250 staff, and either a turnover of under €50 million or balance sheet assets of less than €43m, can claim tax relief on R&D.
The figures are in Euros because the relief is a state aid and needs to be approved by Europe.
A business with an R&D spend of £100,000 receives tax relief as if it spent £200,000, which equates to a £40,000 tax saving on £100,000 of costs.
Ms Halstead said: “The system is time consuming and complex – which is why a number of businesses do not even bother to claim.
“This will be increased to 125 per cent extra relief as opposed to 100 per cent for expenditure incurred from April 1.
“But then it starts getting even more complex. Larger companies can claim relief even where they have received grants or subsidies, there is no upper limit on the amount of the claim and they do not need to own the intellectual property.
“However, for SMEs this is not the case. It’s not easy and it’s not straightforward.”
But help is on the way for companies that use patented processes in their production.
In a bid to encourage the number of patented systems, a new scheme – Patent Box – will be introduced in 2013, which should allow profits from patents to qualify for a 10 per cent corporation tax rate.
“Whilst all of this is to be welcomed, it must be remembered that the UK has compared unfavourably with other countries in terms of the amount of direct and indirect support it receives from government,” she said.
“A report two years ago said that UK businesses receive the equivalent of 0.12 per cent of GDP in direct and indirect support – considerably lower than many other countries.
“We want companies to be able to concentrate on their R&D activities – and not on their tax breaks.
“We think giving manufacturing companies clear and straightforward options should be the first step to encourage innovation.”