Saving tax through R&D tax credits and the Patent Box. Leighton Reed

Transcription

1 Saving tax through R&D tax credits and the Patent Box Leighton Reed Tax Director Broomfield & Alexander Ltd 1

2 Research and development tax benefits - outline Enhanced tax deduction for Small and Medium Sized (SME) companies: 175% x R&D spend from 1 April 2010 to 31 March % x R&D spend from 1 April 2011 to 31 March % x R&D spend from 1 April 2012 plus Restriction of repayment according to PAYE bill to go No minimum spend requirement The above will lower tax bills for SME s undertaking R&D If SME is loss making, can surrender R&D losses for a tax repayment Also, 100% tax deduction on capital expenditure (Research & Development Allowances - RDA s) 2

3 What costs qualify? Salary costs of those activity undertaking the R&D activity The cost of consumables plus a proportion of light, water and heat Costs of paying subcontractors to carry out some of the R&D activities Other points to note:- Grants received will lower R&D claim There is a 2 year time limit for claims 2 years from the end of the accounting period 3

4 What are the tax savings? 4

5 What is R&D? What is R&D? Aim of a Technological or Scientific improvement Can be a product or a process Your company need not own resulting IP Prepare a case around 4 key questions - Is the objective a scientific or technological improvement/advance? What are the uncertainties at the start? How were they overcome? Is the process/improvement easily deducible by a competent professional? There are specialist HMRC offices dealing in R&D claims 5

6 Patent Box - Introduction From 1 April 2013 companies can elect to apply a 10% rate of corporation tax to all profits attributable to qualifying intellectual property. The Patent Box regime incentivises companies to both retain and commercialise existing patents, and more importantly, develop new patents. Aims to encourage companies to locate high-value jobs associated with the research and development, manufacture and exploitation of patents in the UK. Potential cash tax savings are significant but companies need to start thinking now about how to obtain the benefit. The key actions between now and 2013 will include speaking to your patent attorneys and IP lawyers. 6

7 What are the benefit to me? From 1 April % rate of corporation tax to all profits attributable to qualifying intellectual property. Otherwise, main rate of corporation tax of 24% from 1 April 2013 (falling to 23% from 1 April 2014). Small companies rate is 20%. Full benefit of the regime will be phased in over 5 years i.e. 60% of the benefit will be available from 1 April 2013 increasing to 100% by 1 April Where patents are pending, additional relief can be claimed once the patent is granted in respect of up to the previous 6 years (i.e. cumulative benefit after April 2013 missed whilst patent pending can be claimed in the period the patent is granted). 7

8 Which type of Intellectual Property qualify? UK patents, patents registered at the European patent office and exclusive licenses over both UK and European patents will qualify as long as your company satisfies two conditions: 1. Development condition i.e. your company has been involved in the innovation lying behind the patent or the application of the patented invention. 2. Active ownership condition i.e. if your company is a member of a group your company must actively manage the intellectual property. If you are not part of a group you need to meet 1. above and by definition you have met 2. 8

9 What type of income qualifies? There are 4 main income streams that can qualify as relevant intellectual property income: 1. Income from the sale of a patented invention, or products which incorporate it. 2. Income from licensing the patent (i.e. royalties). 3. Outright sale of the patent rights. 4. Notional royalties (i.e. deemed royalties from using a patented invention in a way that doesn t specifically generate income on its own, but does result in income generation). 9

10 How are the profits calculated? There is a (complex) 5 stage calculation to identify the proportion of your company s profits which qualify for the lower rate of corporation tax: 1-3. These steps involve splitting out qualifying income and profits from patents from non-qualifying income and profits. 4. Subtract a routine return of 10% on certain costs to leave the qualifying residual profit. 5. Deduct a marketing/brand royalty, or apply the small claims treatment which removes 25% of the qualifying residual profit (leaving up to a maximum of 1m). 10

11 Patent box conclusions Patent Box and R&D tax deductions only available to companies Patent as many products and processes as possible! 10% tax rate only due once patents granted (can look back 6 years though while patent pending) Consideration should be given to implementing systems for tracking patent derived income, in particular for patent pending scenarios. R&D claims can still be made in addition to making a Patent Box claim. 11