The Report of the Innovation Taskforce, published on 11th March 2010, recommended that the incremental spend requirement of the Research and Development (R&D) tax credit scheme should be removed entirely, making the scheme volume-based in terms of rewarding R&D expenditure. The scheme was introduced in 2004 and provides for a tax credit of 25% of the increase in expenditure incurred by a company on R&D as compared to its expenditure in a base year which is 2003. The purpose of the scheme is to encourage additional or incremental R&D spend by companies. For companies who commenced to incur expenditure on R&D after 2003, the base year expenditure is nil and all of its R&D expenditure will qualify for the 25% credit.
The Taskforce's recommendation in this area would involve an additional "deadweight" cost to the Exchequer in respect of R&D expenditure that had been incurred without the need for a fiscal stimulus. Indeed this fact is acknowledged in the Report. It is my strong view that implementing this recommendation would represent poor value for public expenditure, particularly in the current economic environment. Accordingly, I have no plans to review the incremental expenditure requirement for the scheme, given the obvious deadweight costs involved.