Nat Torkington on R&D incentives

Nat Torkington writes:

How do our startups fit into the R&D tax credit scheme? Short answer is: they don’t. Tax is a concern if you’re profitable. If you’re not profitable, tax is the least of your worries.

So the R&D tax credit does nothing for startups and high-growth firms.

Nothing.

Even worse, the proposal is half-baked. It’s clearly aimed at the kind of old-school physical product companies that dominated the 20th century in New Zealand: Gallagher, Fonterra, etc. It talks about R&D as following the scientific method, and there are lots of examples with dies and machine blanks.

Even weirder, the definition of R&D specifically excludes market research, design, and social sciences work. The iPhone is a UX innovation, and indeed Apple’s whole market distinguishing feature is R&D around Design. Facebook are doing R&D right now via social sciences, trying to understand the networks of conspiring bots and political actors (I know this as I went to Social Science Foo Camp at Facebook in January). Lean and agile software development starts with iterating with a customer, trying to design the feature or product that they want and will use. This is literally called The Design Process and it’s critical to building a new product.

The key point Nat makes is that tax credits are of no value to most startup companies – only to well established companies that are already profitable.

Nat concludes:

Early-stage startups are not profitable, are almost exclusively doing R&D, and are utterly unsupported by this policy.

Hopefully the final policy will be different.