Review of Research and Development Tax Credit

The provided assignment is a compilation of research papers and articles related to taxation, business innovation, and government support. It covers topics such as the effect of tax on business innovation, the role of government in encouraging small business innovation, and the impact of fiscal transparency on local governments. The assignment also includes information on the financial transaction tax proposal, internet addicts' behavior impulsivity, and the selection of transfer payment models based on equalization of public services with population mobility.

The impact of taxation
on business innovation

Table of Contents
INTRODUCTION...........................................................................................................................1
THEORIES AND ASSUMPTIONS................................................................................................1
LITERATURE REVIEW................................................................................................................4
EVIDENCE/ EXAMPLES POTENTIAL QUOTATIONS............................................................6
PERSONAL COMMENTS.............................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENNCES............................................................................................................................11

INTRODUCTION
Taxation is the amount which is required to be paid by individuals as well as businesses
concerns on their wealth and income. All the rules and regulations that are related to tax are
imposed by the legal and regulatory authorities. Whether a business is small or big it is essential
to pay appropriate taxes so that all the operational activities can be performed successfully.
HMRC (Her Majesty's Revenues and Customs) is the non ministerial division in UK who is
responsible to perform all the taxation collection related activities. All the business entities are
liable to pay appropriate taxes according to their business revenues (Bal, 2014). If an
organisation is misguiding the legal body than strict action can be taken against them. As most of
the business entities are developing continuously and implementing innovations at their work
place hence government has also taken initiative to support them. In UK the government has
imposed a tax credit which is specifically designed to offset research and development expenses.
In the research paper impact of taxation on business innovation has been discussed that includes
different assumptions, evidence and examples, literature review and personal comments on this
concept.
THEORIES AND ASSUMPTIONS
Entrepreneurial innovation and taxation:
In present world, taxation plays an important role, in growth and development of
economy. As a small entrepreneurial business firm it is the responsibility of management to
widely believed to have and brought effective innovation practise and methods. This will bring
efficiency among existing worker and develop more employment growth to economy. The main
objective and purpose of entrepreneurial innovation is to bring invention in the policies and
procedure of existing business firm that will support in reduction of taxes paid by company and
increase the profitability during a financial year. In UK, entrepreneurship is encourage with the
support of tax reduction for small companies and by different government support strategy. In
order to bring efficiency and effectiveness in various business operation of company an
entrepreneur is responsible as the play the role of provider of breakthrough invention to improve
the companies (Bednar-Friedl, Behrens and Getzner, 2012). The important document the
describe the different part played by small entrepreneurial entity and large established business
entity in the innovation process in the UK. So in that case the small entrepreneurial business
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entity must create a large portion of discovery inventions and on the other side the large
developed entrepreneur business firm helps to deliver more detailed and specific ordinary
Research & development. In general, an innovation, consistence economy holding desired
entrepreneurial activity. It is observed that in companies large share of funds and monetary
benefits for basic research in a company is might by financed through labour taxation and on the
other side the in the other part are left for the profit taxation.
When an entrepreneur focuses to improve the profit and performance of company they
must tries to make best and effective use of their resources. This will only can be possible in case
if entrepreneur knows each and every aspect of taxes policies and other rules and regulation to
avoid or reduce the impact of taxes on profitability. It is observed that personal income tax,
payroll tax and capital gain tax have a direct impact on the different activities performance by
entrepreneur of small and large business firm. It also leave all individual entrepreneur or
entrepreneur working in small and large companies with less expendable capital. Thus the theory
hold that the more higher the tax rate will make entrepreneur to think twice regarding their
investment in business project or other operation activities (Canming, 2013).
Taxation on Research and Development
In today's world, contribution of research & development to grow the productivity of
economy, develop the performance of each and every unit of company that support to increase
the overall performance of economy. And it help in the achievement of social purpose and
objective. Innovation in small business are basically is an expensive activity and this is basically
done because every organisation wants to grow and develop in term of profit and man-force
strength. It is observed that manager of company in order to remain at the top in industry and
maintain competitive advantage are constantly developing and creating new techniques and
technologies that will help them to reduce the impact of taxation and improve the profitability.
But in the same context it has been determined that almost every small and medium sized
companies lack the sufficient workforce and resources that make them unpowered to invest in
feasible research & development project. But recently, the newly developed techniques an d
technology, fresh material and rational property developed by advanced business firm could be
priceless to the community (Enkel and Mezger, 2013). So in respect to make the research and
development department the UK government has formulated a new tax credit policy that help to
reduce the expenses of companies on R&D. Thus as a result of new tax credit policy many small
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and medium business firm are able to foster innovation in order to attain the best market
position.
R&D tax credit are mainly formulated to add incentive innovation in the developed
economy. So, if small and medium business entity in UK are focused to qualify the research and
development Tax credit, then their manager have to properly investigate about the market
conditions and demonstrate investment in the fresh and developed processes, material,
technologies etc (Jiang, Zhang and Feng, 2014).
Business Innovation Research
In present era, every companies needs innovation and inventions in their business
operation that help them to improve the performance and productivity of companies. Manager of
small fir are always looking in to applies some or other innovation management theory that help
other member of companies to work in most effective and innovative manner. This would also
help them to have a specific solution to the problems faced by companies that may hinder their
performance. In business innovation manager focus on innovation funnel at the starting point, it
is consider to be the visualization tool that help to disclose the actual difference between the
open and closed innovation method implemented by small and large companies to improve the
business operation. Thus the open funnel innovation theory is basically applied as a central
concept that support to grow the different key insights about open innovation and this not only
focus to summarize and visualize but also support to connect open and new innovation to the
existing management and other practices. Thus it is observed that choosing the best and most
appropriate souring modes is significance that further support to execute open innovation
successfully. Manager also uses this method of innovation as a stage- Gate process that is used in
managing the already closed innovation process of company (Jinghuan, 2013). This will make
available of choice manager would have in order to make their operation and activities to be
successful and productive. Thus the gate process strategies is used decrease the technological and
various market uncertainties that may be the reason that reduce the profitability and productivity
of company.
From the the above mention, theories/ assumption it has been observed that entrepreneur
innovation help to reduce the impact of taxation on profitability of company. In UK government
have developed R&D tax credit that help to reduces the expenses incurred by companies on
different Research and development project. Manager of companies are focus to improve the
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profitability of business operation thus they apply the concept of open innovation method that
help to develop new invention. That further support to attain the market share and increase the
economy of UK (Martins, Rindova and Greenbaum, 2015).
LITERATURE REVIEW
According toSu´arez Serrato and Zidar (2016), the taxation is an important element of business
and every one is obliged to pay the taxes according to government rules and regulations. The
study shows incidence of state corporate tax changes on firm owners, workers and landowners
using a spatial equilibrium model and find that these groups bears respectively 40, 30-35 and 25-
30 percent of burden. As tax system promotes the innovation and entrepreneurial activity in
countries. The United Kingdom is a developed country and an effective tax system of that
country is very helpful in the encouraging innovation in country and organisation.
According to Nechaev and Prokopeva, 2013, to promote the economic growth
innovation, and enhancement of innovation process efficiencies are very helpful. As innovation
can be a transformative tool for economic development and economic growth. Enhancement of
innovational process is considered as a great tool for the overall development of country. The
countries which has more innovational activities is considered more developed counties in
respect to those which do not have any innovative promotional activity. Modern economy is
depended upon the innovation and innovational activities. These activities needs to be promoted
by the government of country in order to development of countries
According to Folomev and Revazov, 2001 and Thalassinos et.al, 2014, taxation and an
effective financial structures is considered as one of the most efficient tool for stating regulations
of both national and international economic processes. As an effective tax system of country can
be very helpful in promotion of entrepreneurial activities in country. The entrepreneurs are
promoted to come up with new ideas and get tax subsidies on their ideas. This is one way to
promote the innovation in country. As tax system of country have directly or indirectly make
impact on the innovation and new business. The effective financial structure attracts and invites
the foreign entrepreneurs to start their own venture and contribute in growth of nation.
According to Aghion and et.al., 2018, the quantity and quality of is being produced
depend optimistically on the hard and efforts and resources invested by the inventors as well as
by business firms. The progressive tax rates systems can be a safeguard to high possibility of
failure inherent to the start up. As some government social insurance programs can motivate
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entrepreneurs to take risks and start their venture. As there are many factors involved for
bringing an idea to the market, taxation and government policies is one of them.
According to Dynkin, 2005, As analysis shows shows that higher the innovative
development level which is analysed by Global Innovation Index is mainly observed in
countries with high tax burden rated on individual and low on legal entities, in particular the field
of insurance prize to foundations which have vital impact on prime cost of innovative goods and
services.
According to Franklin Allen, 2012, the taxation can have both positive and negative
impact on the business innovation. As government always tries to come up with those tax
policies which enables entrepreneurs to come up with new ideas and make contribution in
economic development. The research shows that the government of UK have their effective tax
system and an efficient financial structure which enables in house and foreign entrepreneurs to
initiate their innovative ideas in UK and get benefited by the tax policies of country.
According to Michael J. Graetz and Rachael Doud, 2013, innovation is very important
for economic growth of any country. The research and development activities are helpful in leads
to innovation successfully. As tax policies of countries have significant impact on the
achievement of overall organisational goals and grab a share of income from innovations. The
division of appropriate rules regarding taxing IP and for taxing IP revenue has become
challenging for the tax departments.
According to Moresi, 1998 and Scheuer, 2013, evaluated effective tax policies in models
of asymmetric substance with business choice where government faces a trade off between the
efficiency can equality. The tax incentive for entrepreneurs and redistribution of gains from
innovation can be aligned in better way in order to promote the entrepreneurial activities it the
economy and nation. The research shows that tax systems of country can make huge impact on
the economy and their entrepreneurial ventures. An optimal financial structure leads to an
efficient economic growth. It promotes the innovative and entrepreneurial activities in the
country.
According to B. H. et.al., 2009, The variables used to estimate that innovation is highly
effected by the taxation system of any country. The government provides the tax incentives for
the promoting innovation in country. There are some countries where innovation is not up to the
mark due to certain tax and policies. As taxation system has huge impact on the business
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innovation. Due to lack of tax incentives and policies the countries are unable to grow and make
business innovation is right way. As research says that there are nations which provides a
superior financial system and effective tax policy which ultimately leads to the growth of
economy and growth of business innovation.
According to Fraser and Simkins, 2012, there are factors which contributes to the overall
process of economic integration as well as innovation of business. The study and evaluation of
impact of tax leverages on the combination of economy are becoming increasingly significant in
terms of assuring the economic growth within the unions of economics as well as enhance the
efficiency of foreign economic relations for every state. For better economic growth it is
considered innovation is an effective tool and tax system of country is considered as barrier as
well as boosting tool. As an effective tax system is a boosting tool for the economic growth and
where as bad tax system is considered as the barrier for business innovation. Countries now days
use simple and effective tax systems for promotion of business. As the growth of business is
ultimately considered as growth of economy also. The tax incentives is being provided in the
both direct and indirect tax in order to encourage entrepreneur so that they come up with some
creativity in the business.
EVIDENCE/ EXAMPLES POTENTIAL QUOTATIONS
Glenn Keys and Dr. Andrew Walker both are entrepreneurs and co executive chairman
of Aspen Medical. “Entrepreneurial Innovation and Taxation strategy” have been used by
Glenn Keys and Dr. Andrew Walker in order to expand their business with new innovations in
different locations including UK. All the efforts of government to foster innovation including the
framing of tax system has been analysed by the entrepreneurs to expand the business in UK.
Government of UK supports the business innovations as it can help to launch new and innovative
products in the market that can result in increased national income (Nian, 2015).
In UK legal authorities are providing opportunities to the businesses who are going to
launch innovation in the market. Aspen Medicals negotiated with the government regarding the
payment for expansion and than launched their business in UK. When most of the countries are
facing with a huge disease Ebola at that time Aspen Medicals launched antidote for the disease
by considering all the tax related regulations. It was an innovation which was launched by Aspen
Medical all around the world to expand its business. The business of the organisation have
suffered as well due to the taxation policies. It is very difficult for those organisations who are
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operating business in multiple countries to follow the taxation policies of all of them. UK's
government has supported to the organisation and helped to launch the innovation successfully
(Santana, 2012).
Big change is a mobile workforce management company who is currently operating its
business in UK. It has used “Taxation on research and development” while it was doing
research in the market. Research and development credits have been used by the organisation as
it was a start up company and launching with innovation. It was founded in year 2013 by Martin
Port. It has launched Job Watch app in the market which is very beneficial for the individuals
who are willing to work in mobile sector. According to legal body of UK all the business get
benefited with the help of research and development credits as it helps to reduce the expenses
that are concerned with research and development activities. Government has imposed this
policy mainly for small business so that they can grow faster and attain higher profits by
operating business effectively. This approached has helped the organisation to save the cost of R
& D. The saved amount can be used by the company in its operational activities for the purpose
of enhancing operational effectiveness and ability (Si-Hua, 2012).
Brain broker is a technology consulting company which is operating in united Kingdom.
This company is established in the year of 2016 and has its headquarters in UK. This company is
based on an innovative idea of providing technological consultancy services which is founded by
Larry kotch, Jonathan Lemer and Sebastian Shaw. This company has its main operations limited
to the area of UK. The main aim of this company is to provide services like consulting other
small and medium enterprises about how technology can help their business to grow and expand.
Services provided by this company includes consulting about the technological issues, providing
information about benefits of recent technological trends and providing technical data about how
companies can expand their business. In order to effectively conduct their operations, this
organisation uses “Business innovation research theory”. This theory is related with the
activities of research and investigation which a company requires to conduct in order to know
about technological aspects which can help them to attain their organisational objectives (Van
Thong, 2014).
This company acquires ample of benefits due to its innovative approach. Brain broker
operates in United Kingdom's economy. Government of United Kingdom is always known for
supporting their innovative business in order to develop a trend of innovation and
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commercialisation. In order to support this company, government of UK has provided various
benefits such as tax reduction and loan at low interest rate. Every business start up requires
ample amount of capital which can not be procured from self finance. In order to resolve this
problem, government of UK has provided low interest loan to this company so that they conduct
their business with all the resources that are essential for them.
PERSONAL COMMENTS
From this research paper it has been analysed that various policies have been imposed by
UK government to support business innovation. Tax credit is one of them which is introduced to
reduce the expenses that are involved in research and development activities of the businesses.
UK government is very much concerned with the economic growth. Legal authorities in UK
giving opportunities to those businesses who are using innovation as this will help to increase
their profits and they can contribute higher amount in the national income. This will also help the
economy to grow faster (Vella, Yevgenyeva and Englisch, 2013). Government introduced this
policy mainly for small and medium business enterprises as they get less affected due to the
economic changes. When most of the large organisations in UK are facing with low profitability
due to Brexit at the same time start ups, small and medium business are trying to grow and also
helped the economy to be stable.
Research and development tax credits are launched for small business who are having
staff members less than 500 and their turnover is under 100 million pound. All the businesses
who are willing to quantify this credit have to be according to requirements of government. As
there is lack of awareness among small business owners about research and development credits
hence they are not able to take full advantage of this scheme that may help them to reduce their
expenses at the time of business innovation. As HMRC has introduced this tax credit for the
business so that they can conduct all the innovation related activities appropriately and it has
resulted positively for companies. Various business have saved 33 penne on each pond which
has been invested by them in research and development process. This policy of HMRC have also
helped to create a stable business environment for organisations where they can grow and
increase their profitability (Xingqiong, 2013).
This policy was imposed in year 2000 since than all the business are started to take
advantage from this. While writing this research paper the researcher have also observed that
research and development tax credits have enhanced technical innovations in UK as the
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government has started to support technology. Business started to make more money with the
help of such type of innovations as local public of UK is very much aware of technology.
It has also been identified that government of UK is also supporting the organisations
who want to expand their business in UK by launching new products. As it will help in economic
growth hence the government is providing opportunities to the companies. When business
entities try to enter in UK's market than legal authorities also provide them tax benefits so that
they can establish their business successfully. Researcher have observed that regulatory bodies in
UK are highly supportive as they are promoting business innovations because this will increase
the number of new products in market which will result in increased national income and
developed economy. It is very beneficial for all the businesses who are willing to launch
innovative products and services in UK's market because they will have less tax implications and
they can grow faster there. For all the organisations it is very beneficial for the companies who
are willing to expand their business in different geographic locations because the government
will help to successfully launch the business and operate all the activities appropriately (YANG,
TANG and YAO, 2015).
When a start up with a innovation launches in UK than government provide full support
to the business owners as they can help to grow the economy faster. Government also help to
conduct the research successfully with less interference of legal authorities. Ever business have
to conduct a research in the market before launching a new product so that it can be determined
that customers will accept the product or not. Regulatory bodies in UK also decrease tax rate for
the innovative business as it can help them to operate business appropriately. When a new and
innovative product launches in the market than government give full support to them as they can
help to overcome from all the economic challenges that are faced by a country.
All the companies who are using business innovation get various tax benefits from the
side of the government as it helps both of them. Organisations can save funds and the economy
of the country can grow faster if the business are generating higher profits. As government has
imposed research and development tax credit policy for the business entities so that their
spendings in research and development can be reduced in order to operate business
appropriately. The researcher have figure out that government in UK supporting the new
business as well as foreign business to launch innovative products as it can help the economy to
grow faster. Foreign trade is also promoted by the legal authorities by reducing taxation rates for
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the business organisations. Taxation on business innovation leave positive impact on companies
because they get different types of taxation related benefits from the government so that their
business can be operated appropriately (Yuemei and Jie, 2017).
CONCLUSION
From the above research paper it has been concluded that taxation has impacted the
business innovations positively and negatively. Government of UK has imposed tax credits for
the business who are following innovation, this policy helps to reduce the expense that are going
to be invested in the process of research and development. As a business grows after
implementing innovation than the profits get increased and then government impose new rules
on the businesses to pay tax which will decrease the interest of business owners in the
innovation. When corporate tax rates reach to the peak it will result adversely for the economy of
a nation because this will reduce the effectiveness of the the organisations.
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