Companies miss out on tax benefits

UK businesses are missing out on tax breaks on software because they don't understand their entitlements, according PricewaterhouseCoopers.

'Tax credits have made a real difference to firms that have taken them up.' says the company's technology leader Andrew Bell.

'But take-up has been relatively low and I suspect that the complexity of the rules has been off-putting,' he said.

In April 2000, the government introduced credits to encourage investment in research and development. (R&D). The incentives were extended last year by reducing the qualifying threshold and including some software development.

Firms are able to claim tax relief on:

• Staff salaries where more than 80 per cent of time is spent on R&D.
• The cost of developing new software.
• The use of software to drive developments, such as the use of computer-aided design

'The rules are quite specific, in that the work must have some element of novelty to it. But there is little to lose by applying to tax relief,' said Bell.

• The government must use next week's budget to reform the tax break system for research and development (R&D), according to IT trade body Intellect.

It wants incentives so that the UK can establish itself as a global centre for innovation.