28 technology Tax driven growth?
Chris Mundy and David Willott of Grant Thornton consider the issue of increasing tax incentives for the technology industry
The technology sector is already an important contributor to the UK economy, employing one in 20 of the UK workforce and contributing approximately 7% of GDP, although this is predicted to spiral over the next five years.
In light of a general shift to
lower cost countries for manufacturing bases, the technology industry is key to Britain’s aim to redefine its economic identity to that of a knowledge economy with an emphasis on high-value intellectual output.
... 30% relief will be available on investments of £1 million – a 300% increase in total potential tax relief
It is therefore welcome that the government is introducing a range of tax incentives to encourage that transition. This article is designed to introduce a number of the key incentives which, in our experience, technology businesses are starting to adopt. They have been addressed below in the order that a typical technology company would benefit from them in its lifecycle.
The first is designed to encourage private investment in companies through generous tax incentives for investors, known as the Enterprise Investment Scheme (EIS). Historically, individuals could invest £500,000 in a tax year and receive 20% tax relief on their investment (ie a £100,000 reduction in their income tax liability).
For new ventures, SEIS therefore represents an even more efficient way to attract investment
However, with changes made from April 6, 2011 and others due to apply from April 6, 2012, 30% relief will be available on investments of £1 million – a 300% increase in total potential tax relief. This income tax saving, coupled with the fact that the shares are usually capital gains tax free, means that even though EIS is only applicable for certain companies, it is a very effective way to attract new investment.
An extension of EIS known as the Seed Enterprise Investment Scheme (SEIS) has been introduced to encourage investment in start-up micro entities. SEIS has many similar conditions to EIS but is restricted to companies who were incorporated within two years of receiving the investment.
The amount of investment which can be made is limited to £100,000 but given the
www.businessmag.co.uk
greater risk inherent when investing in newer start-up companies, the income tax relief given is 50% of the investment (ie up to £50,000). For new ventures, SEIS therefore represents an even more efficient way to attract investment.
Virtually all technology companies will be able to take advantage of research and development (R&D) tax relief to reduce their tax bill or to obtain a cash repayment from the Government.
It is worth companies
examining their claims carefully to ensure the amount of relief is not underclaimed. We often see companies without specialist knowledge of this area miss out on various opportunities to enhance their claim, especially as the scope of costs which can be included is becoming increasingly generous.
New changes mean that from April this year, SMEs can enhance their relief further: for every £100 of qualifying costs claimed, they can reduce their tax liability by up to £56.25.
... the Government have also announced that large companies will soon benefit from an ‘above the line’ credit
A number of companies has found that, to date, their cash repayment claims have been restricted to the amount of their annual PAYE/NIC payments. The good news here is that this restriction is to be abolished which should allow a number of companies to increase their cash reclaim.
Interestingly, the Government have also announced that large companies will soon benefit from an ‘above the line’ credit. This is widely expected to mean that large companies undertaking R&D will also be able to obtain a cash repayment from the Government in some circumstances. The 'above the line' credit is supposed to help raise its profile amongst the boards of these companies.
A very new incentive which is currently getting a great deal of publicity is the introduction of the patent box rules. This incentive will allow companies who exploit their patented technology to pay just 10% tax on the resultant profits.
From April 2013, where a company derives profits from patents (whether from the sale of products incorporating patented technology, from licensing income or from services derived from patented technology) and has been involved in the development of the patented technology, the low tax rate should be available, giving a potential saving
Chris Mundy
David Willott
of almost two thirds of a company’s tax liability.
It should help to make the UK one of
the more attractive locations for technology businesses owning patents.
We are currently working with a number of companies to ensure their operations are correctly structured to take maximum advantage of this very generous relief.
If you
are an international organisation with some form of patented technology, are you clear on what you need to do?
These are just a selection of the types of tax incentives which are available to technology companies but are indicative of the wider package available to companies operating in this industry and demonstrate the government’s stated intention of making the UK an attractive location for technology businesses.
Details:
Chris Mundy
chris.m.mundy@
uk.gt.com
David Willott
david.j.willott@uk.gt.com
THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52