FINANCE: ROBERT LEGGETT
Words: Robert Leggett R
esearch & Development tax credits and the Patent Box regime have long been seen as the domain of high-tech companies on the cutting edge of developing new technology. However, in an on-going commitment to promote innovation in the UK, the Government have introduced legislation to increase tax reliefs available to many companies – even those in the rail industry and the supporting supply chain.
Research and Development Tax Credits
Legislation in Finance Bill 2012 will increase the tax deduction available to SMEs for qualifying R&D expenditure to 225%. This means that from 1 April 2012, for every £100 of qualifying costs, a company could have its taxable profits reduced by an additional £125 on top of the £100 spent. Based on a 24% tax rate, that could mean a tax reduction of £54 for every £100 spent.
If your company is loss making, the scheme goes even further, allowing relief by way of a cash sum paid by HMRC. This can be vital for companies in the early stages of trading and who may take a number of years to become profitable.
Large companies and companies that are related to larger enterprises can also benefit from R&D tax relief, with a deduction available for qualifying R&D expenditure of 130%.
As you can see, the tax incentives to be gained from the R&D scheme are now too substantial to ignore, yet many eligible companies are failing to take advantage of this valuable relief. Why?
Unfortunately, there is a common misconception that the R&D tax credit scheme is only available to high-tech companies with dedicated research teams and men in lab coats. This is not the case. R&D covers a broad range of activities and relief could be available to any company that develops new products, technologies or processes.
What’s more, it is not just the creation of new processes or products that may qualify for relief under the scheme. Projects that make an appreciable improvement to an existing process or product may qualify as R&D, as might the duplication of existing processes or products in a new or improved way.
Broadly speaking, in order to qualify as R&D, a project must be able to demonstrate an advance in science or technology through the resolution of a scientific or technological
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uncertainty. This can occur whenever a company faces a technical problem, the solution to which is not readily available or deducible by a ‘competent professional’ working in the field.
R&D relief may be available in situations where several companies are working at the cutting edge in the same field and are doing similar work independently, or where a company repeats work that has already been done by another company but is not generally known because it is a trade secret.
Developing something that has already been established as scientifically feasible into a cost-effective, reliable and reproducible product or process, perhaps by systematic testing or trial and error, may even be qualifying R&D.
The scheme is part of the Government’s growth agenda, designed to encourage companies to locate high-value jobs in the UK and maintain the UK’s position as a world leader in patented technologies.
The opportunities to claim relief under the R&D tax credit scheme are vast, so whether you are in the rail industry and association supply chain, manufacturing or architecture or printing & packaging, it is certainly worth revisiting the prospect of making a claim.
The Patent Box
After much consultation since its first announcement in 2009, the Patent Box regime has finally been legislated and is due to take effect on company profits earned after 1 April 2013. The regime is being phased in over five years, with full benefits being available from April 2017.
The scheme is part of the Government’s growth agenda, designed to encourage companies to locate high-value jobs in the UK and maintain the UK’s position as a world leader in patented technologies.
It will allow companies to elect to apply an effective 10 per cent rate of Corporation Tax to profits arising from the exploitation of patented inventions and other qualifying intellectual property (IP) rights. Other non-qualifying profits will continue to be taxed at either the main or small profits rates.
In order to benefit from the Patent Box, your company must own or exclusively licence- in patents granted by the UK Intellectual Property Office, the European Patent Office or specified EEA countries, and the company (or in certain cases a group company) must have undertaken qualifying development for the patent. The Patent Box will apply to existing as well as new IP, but patents bought as investments will not profit from the new rules.
Supplementary protection certificates and certain other medicinal and botanical innovation rights will also be included within the regime.
So what constitutes profits arising from exploiting qualifying IP? In order for income to be eligible for the Patent Box, it must come from at least one of the following:
• Sale of patented products. • Licensing-out of patent rights. • Sale of patented rights. • Infringement income.
• Damages, insurance or other compensation related to patent rights.
Relief is also available under the Patent Box scheme for companies that use a patented manufacturing process to manufacture non- patented products, or who provide a service using a patented tool.
The key thing will not just be claiming relief on items which you have patented anyway, but also exploring the possibility of patenting newly developed items to benefit from the tax relief. In many cases, this will be worthwhile where traditionally it would not have been; often, it may only be possible to obtain a very narrow patent, which would provide very little protection benefit and would not have been worth applying for. However, if this is now the ‘gateway’ to the tax relief, this type of narrow patent is likely to become more common in future.
For further information or assistance with any of the matters discussed please contact Robert Leggett on 01473 220022 or email
robert.leggett@ensors.co.uk.
www.ensors.co.uk RailCONNECT 49
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