TIGA, the trade association representing the video games industry, said today that the Government should increase the rate of Research and Development (R&D) tax reliefs. TIGA recommended that the rate of R&D tax reliefs should be increased for both large and small businesses to support innovation and growth in the UK.
TIGA made the comments, among other suggestions, in response to HM Treasury’s consultation on R&D Tax Reliefs. The Government’s consultation took views from stakeholders on the UK’s current R&D tax relief system. The Government’s lines of enquiry centered on the structure and administration of reliefs and the definition of R&D and qualifying expenditures.
UK productivity compares relatively poorly vis-à-vis other G7 countries[1]. This can partly be explained by the fact that the UK’s commitment to investing in R&D has historically fallen short of our European counterparts. According to the OECD, in 2020, the tax subsidy rate for large enterprises fell below the OECD median[2]. Between 2010 and 2020, the only G7 country with a lower average investment in research and development was Italy[3]. TIGA has argued that increasing levels of R&D relief should incentivise more UK firms to invest in R&D, which in turn should help to address the UK’s productivity challenge.
In response to HM Treasury’s consultation, TIGA advanced the following arguments:
- The rate of R&D Expenditure Credit should be increased from 13 per cent to 25 per cent for large enterprises.
- The SME tax allowance rate should be increased from 130 per cent to 150 per cent.
- The Government should assist more small businesses to access R&D tax reliefs.
- Outsourced R&D could be claimed at 100 per cent. If larger games development studios could claim 100 per cent of costs, they could be incentivised to outsource to smaller developers to help with R&D and benefit those smaller companies significantly.
- The scope of R&D reliefs could be extended to cover areas including data costs and cloud computing costs.
Dr Richard Wilson OBE, TIGA CEO, said:
“The UK’s productivity performance has been disappointing in comparison to many of our peers, especially since the financial crisis. Relatively low levels of investment, including investment in R&D, have contributed to this problem. The Government could incentivise more businesses investment in R&D in sectors across the UK economy by increasing the rates of both the R&D Expenditure Credit and the SME tax allowance. Enhancing R&D tax reliefs would help many UK video games developers by enabling them to invest more in tools, technology and proprietary game engines; improving cashflow; increasing headcount; and strengthening their long-term viability.”
[1] House of Commons Library, Economic Indicators, A4: Productivity (2021). In 2016, UK productivity was 16% below the average of the rest of the G7 countries, the largest since at least 1995 (when the ONS data series began). This is a striking change. In 1960, Britain had the highest level of productivity in Europe, measured in gross domestic product per hour worked. See Giles, Chris, ‘Britain’s productivity crisis in eight charts’, Financial Times, 13th August 2018.
[2] R&D Tax Incentives: United Kingdom, 2020. (OECD, 2020).
[3] ‘Why once successful countries like the UK get left behind’ (Financial Times, 2021).