U.K. Auto Industry Seeks Changes to R&D Tax Credits

The Society of Motor Manufacturers and Traders and the Engineering Employers Federation call for reforms to research-and-development tax credits in the U.K., saying proposed changes could boost both R&D investment and job creation.

They say the government could create a truly internationally competitive R&D tax-credit structure by strengthening the link between the credit and R&D investment decisions, substituting the link to the corporation tax with an “above-the-line” credit.

Society of Motor Manufacturers and Traders CEO Paul Everitt.

They say the change would encourage major private-sector and foreign investment in U.K. manufacturing, create high-value jobs, support government efforts to rebalance the economy, enhance the U.K.’s global competitiveness and drive economic growth.

The report, commissioned by SMMT and EEF and prepared by PricewaterhouseCoopers, is the product of discussions with more than 30 key U.K. R&D investors across a range of business sectors.

It is being presented during a Tuesday briefing with members of Parliament and government officials.

In the report, EEF and SMMT urge government to provide a cash benefit or redeemable credit at the point R&D costs arise, instead of a relatively opaque offset against corporation-tax payments.

They say the change will provide a stronger incentive for the U.K.’s biggest R&D spenders to increase investments here and attract new foreign investment.

The report estimates the change could increase R&D investment in the U.K. by nearly £390 million ($624.9 million) a year and short-term economic output by £665 million ($1.06 billion), outstripping the £205-million ($328.4-million) net cost to the government by a factor of three.

“For U.K. manufacturing to take advantage of the global shift to a low-carbon economy, we must secure an increased share of global R&D investment,” SMMT CEO Paul Everitt says in a statement.

“Automotive is Europe’s largest investor in R&D, and the changes proposed will encourage companies to invest even more. Many countries are keen to secure high-value R&D investment, and it is essential the U.K. business environment remains globally competitive and attractive to international investors.”

The current R&D tax-credit system is linked to corporation-tax payments. Money-losing companies, typical throughout the manufacturing sector, have no immediate incentive to sustain or increase their R&D activities in the U.K.

SMMT and EEF want the system changed for large companies to make R&D tax relief effective, certain and highly visible to investors, regardless of their U.K. corporation-tax position.

It is recommended the “above-the-line” credit be applied to allow companies to count the credit as direct cost relief against R&D spending in the U.K. in the planning phase, resulting in a substantive reduction in those costs.

The two groups say the certainty and immediacy of the benefit, and its visibility, would support spending during the innovation phases of the investment and business cycles, supporting cyclical industries such as automotive and increasing the U.K.’s attractiveness to foreign HQs deciding where to locate R&D spending.