Home · Blog · So refreshing to see someone telling the truth

Blog

So refreshing to see someone telling the truth

September 29, 2009

By Richard Murphy

Richard Murphy is a founder of the Tax Justice Network and director of Tax Research LLP. An expert on tax policy, he writes a daily blog which provides regular news on his activities and opinions at www.taxresearch.org.uk/Blog/

FT.com / Entrepreneurship – Tax crackdown defended.

A leading adviser on research and development tax credits has leapt to the defence of HM Revenue & Customs (HMRC), claiming its officers are right to crack down on those trying to exploit the system.
Peter Denison-Pender, managing director of Alma Consulting, refuted claims made by accountancy Grant Thornton earlier this month that tax inspectors were being unfairly tough with companies seeking R&D tax credits.
“HMRC is not the bad guy here,” Denison-Pender said. “All they are doing is clamping down on production masquerading as research.”

Good for him.

Bad for GT.

And how good to see someone saying that cheating and then blaming HMRC is unacceptable.

perhaps there are ethics out there, after all, in amongst the self promotion

Tags: HMRC, Tax Evasion, UK

This entry was posted on Tuesday, September 29th, 2009 at 11:27 am and is filed under Blog.You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Disclaimer: Unless specifically stated to be the views of the Task Force, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Task Force on Financial Integrity & Economic Development.

http://research-and-development-tax-credits.com Micah Levy
Don’t agree with this article and the comments from Richard are on this occasion misguided. Look at every other significant R&D incentive regime – the US, Canada, etc. In all of them the cost of prototypes that are later sold can attract R&D tax relief if they are effectively ‘experimental production’- something that has been established by extensive case law in those regimes over the past 20 years.
No one is talking about claiming R&D tax relief on standard production runs but the position of HMRC is that anything which is ever sold cannot attract the relief.

http://www.taxresearch.org.uk/blog Richard Murphy
Micah
But all the people in the FT are saying is the rules should be complied
I am applauding them for doing so
What is wrong with complying with the rules – whether you like them or not?
Richard

http://research-and-development-tax-credits.com Micah Levy
Richard,
Of course the rules should be complied with – and no one has an issue with that. The problem here is that the statutory guidance is ambiguous and can be interpreted in different ways. The way in which HMRC are choosing to interpret it is at odds with what is common practise in other R&D regimes around the world, and can be seen as going against the ‘spirit’ of the legislation if not the letter.
The article in question labelled those who do not interpret the legislation in the same way as HMRC as ‘trying to exploit the system’ though which just seems like some cheap point-scoring.
Micah
http://www.taxresearch.org.uk/blog Richard Murphy
Micah
Of course it could also just be right
Why does the HMRC scheme have to be like everyone else’s? Tax is national.
You have not made your case as yet
Richard

http://research-and-development-tax-credits.com Micah Levy
Although tax may be a national issue, R&D is global and the tax system just happens to provide a fairly efficient means for the UK to subsidise the cost of R&D, thereby increasing the amount of R&D performed by UK companies.
A bit of background info first: why is R&D incentivised at all? In economic terms, R&D suffers from what is known as imperfect appropriability. In other words, the Private Rate of Return (PRR) of R&D, which is the benefit that the company performing the R&D gets, is less than the Social Rate of Return (SRR) which is the benefit that accrues to the rest of the economy. Left to their own devices, therefore companies will only perform enough R&D to achieve the PRR rather than the optimal (for the general economy) SRR.
The purpose of the R&D scheme is to close the PRR-SRR gap by incentivising more R&D to be carried out.
If not all R&D is incentivised then the UK will not reap the social benefits of R&D carried out in those areas. This is bad for the UK economy as a whole. And let’s not forget that the definition of R&D is one that is defined by the OECD and provides a global benchmark (see the Frascati Manual)
On a final note, R&D is a business activity the majority of which is carried out in the main by a relatively small number of global multinationals. For the scheme to be successful in the UK, and for companies to utilise it, it needs to provide certainty which currently, although having undergone great improvements since its inception, it does not.

http://www.taxresearch.org.uk/blog Richard Murphy
Micah
Please tell me what is certain in your life?
I guess the sun will probably come up tomorrow – but I can’t guarantee it
So why must tax have a property nothing else, and no form of words, can ever deliver?
Richard
http://research-and-development-tax-credits.com Micah Levy
Richard,
Certainty is not the main issue – see above – but is still important as if the scheme is intended to incentivise additional amounts of R&D, companies will only make these extra investments if they know they are going to reap the benefits. This was recognised by HMRC when they set up specialist R&D centres http://www.hmrc.gov.uk/randd/special-units.htm and from Gordon Brown when the scheme was set up http://www.hm-treasury.gov.uk/press_84_03.htm
“The Government introduced R&D tax credits in recognition of the importance of innovation for driving up the UK’s productivity. They have been welcomed by businesses because they provide a real incentive for additional R&D spending. We now intend to build on the success of R&D tax credits by ensuring that the definition of R&D provides businesses with the clarity and certainty they need.”
http://www.empowerment-gateway Laurinda Seabra
I agree with Richard.
Often, and I have seen it happen in South Africa … production items are indeed allocated to R&D expenditure (in large organisations) … especially just before a product goes live! I.e. I designed a wheel for x application … proof of concept is finished, we now starting the first production run … instead of this run being allocated to normal operations it get allocated to R&D …
then 1, 2, 3 years down the line … under the guise of continuous improvement … some runs which are sold at market prices, its costs are allocated to R&D …
There is even a name for that … “Project acceleration budget” … in this budget you allocate, fictitious R&D costs, bribes, etc …
But you seldom find this happening in smaller manufacturers … if for no other reason than there isn’t enough “space” to do that. So the disparities between large and small continues … often enabling large organisations to gain unfair competition … not to mention defaulting on contributions to the fiscus …
L