Sarah Harding PhD
Do you find R&D too taxing?
Published: March 23, 2017 by S Harding
Tax credits could have a meaningful impact on your bottom line
Would you believe me if I told you that the government might actually pay your company to perform its own R&D?
This is, in effect, the situation for many companies in the UK right now. Tax relief on allowable R&D costs (which include materials, employee costs, utilities, software, and even subcontracted R&D expenditure) is a massive 230%. That’s right – for every £100 spent on R&D in the UK, companies can reduce their corporation tax by an additional £130 on top of the £100 spent.
Of course, the UK is not alone in this incentive. A number of tax relief schemes are also available in other countries – for example, there is a general business tax credit for companies that incur R&D costs in the USA. It doesn’t take much imagination to see that some of these incentives and benefits could have an incredible impact on a company’s figures – in some cases, they might even turn a profit and loss balance sheet from red to black.
“For as long as existing tax credits and grants continue to be available to us, we’re happy to pass on those savings to our customers.”
But perhaps even more importantly, over and above improving bottom lines and allowing companies to offer competitively priced services, these incentives and tax benefits are a clear reflection of the importance of R&D to respective governments. Indeed, earlier this year, when British Prime Minister Theresa May unveiled plans for a strategy to boost the post-Brexit UK economy, the number-one point of her 10-point plan was “investing in science, research and innovation”. Then just a few weeks ago, in March, the British Chancellor’s Budget Statement was given a cautious welcome by the UK’s Chemical Industries Association. The trade body criticized a lost opportunity on reforming energy taxes but welcomed a focus on STEM in the UK’s education system and the government’s support for UK-funded innovation.
Meanwhile, across the Atlantic, we see President Donald Trump encouraging manufacturing back to the USA with tax breaks and amnesty periods promised to big businesses returning home. And another example – in this issue of Speciality Chemicals Magazine, Ms Cindy Koh, Director of Energy and Chemicals at Singapore’s Economic Development Board, explains why Singapore is so keen to position itself as a choice location for chemical manufacturing companies.
What I find encouraging about these efforts is the apparent recognition that manufacturing is finally making a comeback. After nearly a decade of slow global growth across the board, we appear to be seeing the beginnings of a global recovery.
In the Agrochemicals section of this magazine, Daniel Marr, Group Head of Marketing at Airedale Chemical, tells us that the European market for peracetic acid and other industrial products is booming. The various facility openings and expansions detailed on our News pages suggest a similar story is unfolding across the world. Certainly, looking at the markets (e.g. the FTSE, the NASDAQ), there seems to be a broad optimism for the future state of the global economy.
Faster growth is fueled by greater investments. In the fine and speciality chemicals industry, much of that investment will take place in the form of R&D. A recent on-line article highlighted a list of the top 20 pharmaceutical companies in the world investing the largest sums in R&D in the fiscal year 2015-16. Topping the list was Novartis, which apparently spent $11.2 billion on R&D during that year. Other companies making the list included Roche ($10.7 billion), Johnson & Johnson ($10.3 billion), Pfizer ($8.78 billion) and Merck ($8.03 billion).
I hope they all remembered to take advantage of their tax credits.
Sarah Harding, PhD
Editor – Speciality Chemicals Magazine