Sometimes projects fully develop

Transcription

1 e: t: Budget Announcement & R&D Tax 2013 March 2013 LinkStep R&D Tax Services Sometimes projects fully develop.others never quite fully hatch. Surprisingly, companies can receive a cash beneﬁt in both scenarios

2 Contents Introduction - 1 Budget Summary Points Relating to R&D - 2 Large Companies R&D Expenditure Credit - 3 SME s - 4 Patent Box - 5

3 Introduction Research and Development is absolutely central to Britain s economic future. - Chancellor George Osborne at Wednesday s Budget Announcement speech. R&D Tax Relief remains an important part of the Government s agenda, having been started by the last government and enhanced by the current one. The economy is shouting out for financial support We believe that R&D tax relief is an incentive that directly assists start-ups, young and mature companies that is sometimes overlooked. R&D Tax claims can only aid growth and cash flow. Growth will mean recruiting more staff, potentially higher profits and the UK becoming a stronger technology base for both UK and foreign investment. Ultimately, investing in research and development projects becomes a selffulfilling prophecy that will see both companies and the economy vaulting out of the flat-line we currently find ourselves in. The Government, HM Treasury, and HMRC are standing behind companies, large and small, making legitimate R&D tax claims. Possibly the most notable changes regarding R&D Tax in the 2013 Budget are Patent Box and the R&D Expenditure Credits, the latter is specifically only for large companies. There have been no changes regarding R&D tax relief for the SME scheme as this was subject to a number of significant changes that came into effect in April

4 2013 Budget Summary Points Relating to R&D R&D (Above the Line) Expenditure Credits Introduction of R&D Expenditure Credits for large companies from 1 st April The rate has now been increased to 10% before tax. Furthermore, lossmaking large companies will also be able to claim a payable credit at the same rate. Corporation Tax The Government is set to reduce the main rate of Corporation Tax again to 20%. This will match the small rate of Corporation Tax from 2015, and therefore create a completely standard Corporation Tax rate for the first time since The rates are now set to be (initiated on the 1 st April of the year): 2011, 26% 2012: 24% 2013: 23% 2014: 21% 2015, 20% (2013 Budget Announcement). Patent Box Originally announced in the Corporate Tax Road Map in November 2010, the Government will introduce a reduced 10 per cent rate of Corporation Tax for profits attributed to patents and certain other similar types of intellectual property. The regime will be phased in over five years from 1 April Video Games Tax Relief Mentioned in the 2012 Budget, it was hoped to be in the pipeline for However, the original proposition has failed to gain initial European Commission approval. There is still the possibility of the relief being introduced later in In the meantime, R&D Tax Relief/Credits still remain a very applicable solution that is overlooked by much of the Computer Games development industry. Something to watch out for in the future. 2

5 Large Companies The R&D Expenditure Credit The objectives of the new R&D Expenditure credit, also referred to as Above the Line (ATL) Credit, are to: Be more effective in directly influencing development discussions and budgeting, Provide more certainty of timing and quantum of benefit, Allow loss-making companies to benefit from development efforts. The rate has now been increased to 10% before tax. This new scheme will take effect from the 1 st April 2013 for large companies only. Our comments We see this will have a significant and very positive impact for any large companies undertaking development, whether claiming or about to claim. The capability to directly associate R&D credits to the funding of a department or project, will change R&D budgeting decisions. ATL will also reduce the pretax cost of a project and will therefore become more visible to decision makers. This will also provide a greater incentive to multi-national companies looking to locate their R&D functions within UK borders. Formal documentation that supports and justifies the claim will be very important. 4

6 Small, Medium Enterprises SME s While there were no R&D announcements for the SME sector in the 2013 Budget, this was not disappointing. There have been three years of very encouraging enhancements to the scheme, some of which are often overlooked. One key change that came into effect in April 2012 was the 225% Superdeduction meaning an additional 125% uplift on your qualifying expenditure. Claims can potentially net a cash benefit of up to 30% of the development costs (SME company with profits, using the 2012 rate of corporation tax 24%). This is delivered as a refund or saving of Corporation Tax. Where a company has losses, a result can still be generated through R&D Tax Credits in the form of cheque from HMRC, still at around 10% to 25% of the qualifying development costs. Notable changes that came into effect last year, yet were not often mentioned in the press include: The removal of the limit of SME payable R&D Tax Credit, based on a company s PAYE/NICs liability. Previously, a company claiming R&D tax credits in a loss-making situation was limited to the total amount of PAYE/ NIC liability within the company. A genuine example in our client base was a packaging company, designing and developing manufacturing solutions but outsourcing the development to India; they have 3 employees in the UK, yet over 600,000 of outsourced development costs. The claim would have been limited to only a fraction of the full potential R&D Tax Credit claim.. This is also a very relevant change to start-up companies, often in losses, with directors that are not initially taking a salary and yet incurring costs relating to outsourced development. Relaxing the definition of an externally provided worker (EPW), often referred to as a contractor that is working within your team. There were previously complex rules in place that prevented claims being made where there were more than three parties present in the EPW relationship. The impact generally involved a situation where there is a group procurement company that contracts with an agency for the supply of the EPWs, or where the individual operates through a personal service company. A notable fact is that you have always been able to claim for out-sourced development located outside of the UK. We are increasingly coming across companies that are not claiming for this on the assumption that they do not think that it qualified or that it may be a grey area. We must still consider carefully the R&D Boundaries during this process, as it is not a blanket rule that qualifies all out-sourced work. 3

7 Enacta Growth & LinkStep R&D Tax Services LinkStep and Enacta operate in an alliance because Intellectual Property and R&D Tax Relief services are complementary. Furthermore, costs concerning the protection of Intellectual Property and Patents can be directly offset by the money generated through the R&D Tax Relief or R&D Tax Credits process. Could your Intellectual Property save you tax through Patent Box? What is a Patent? A patent protects new inventions and covers how things work, what they do, how they do it, what they are made of and how they are made. To be patentable an innovation must be new (not in the public domain) and solve a problem. Many businesses have, or could have, innovations that could be protected but do not know how to go about it. The launch of Patent Box tax relief in April 2013 is a major financial incentive to check whether this could help your business. What is Patent Box? Patent Box is a tax-based UK Government scheme that reduces the rate of corporation tax for profits generated from patented technology to 10% over 4 years from April 2013 for any qualifying revenues. This will have a significant positive impact on business value. Profits resulting from the sales of any qualifying patented products can benefit from the Patent Box scheme. In addition, sales of items incorporating a qualifying item can benefit from the Patent Box, even if the patented part is only one of many components in the larger item. 5

8 Patent Box (continued) Profits that qualify for the Patent Box scheme may also be generated by licensing a qualifying patent, receipt of damages or account of profits following successful infringement proceedings, and sale of a patent or portfolio of patents. Both the owner and exclusive licensees of a qualifying patent can benefit from the Patent Box scheme at the same time. The scheme becomes effective for a business once the patent is granted and is then back dated to the patent application date or the start of the scheme. Role of Enacta Growth Enacta identifies and reviews a company s Intellectual Property (IP) assets, and maps those assets onto product/service offerings in order to calculate potential Patent Box qualifying revenue. If a company already has a patent portfolio, the patents are reviewed and assessed, and new patent protection possibilities identified. For companies that do not have patented technology, then possible patentable inventions are identified, and a planned filing programme and business case put in place. Enacta works closely with any existing professional advisors throughout the process. Enacta also identifies patents that may be licensed in order to gain access to the Patent Box scheme. Next Steps Contact Enacta Growth at [email protected] for a free phone consultation to establish your potential to gain value from Patent Box and use your IP to full effect 2013 LinkStep R&D Tax Services Ltd. All rights reserved. The information in this document (and the associated website) is for general interest only, is subject to change without notice and should not be considered professional advice. Any action or inaction taken as a result of this information is at your own risk and is not the responsibility of LinkStep R&D Tax Services Ltd. To the fullest extent permitted by law, no liability is accepted. Professional advice should always be sought in relation to your tax affairs. 6