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TAX INCENTIVES


FROM THE OUTSET


In our view, early consideration at a project’s outset is needed to ensure that businesses structure innovative activities to efficiently retain a competitive edge in today’s marketplace.


SMES There is also a beneficial UK R&D incentive available for small and medium-sized (‘SME’) businesses. These companies can claim a deduction of 230% of the qualifying spend on R&D, with loss-making companies able to turn 33.35% of the qualifying expenditure into a cash payment (based on rates from 1 April 2015) giving a significant boost to such companies investing in new technologies. With increased SME size limits for the purposes of the R&D legislation (500 employees and either turnover of €100m or gross assets of €86m) many businesses can fall within this R&D regime.


UK PATENT BOX REGIME


Tax relief is also available via the UK’s Patent Box regime. Under current rules, where taxable profits can be attributed to the exploitation of patents, a lower effective rate of corporation tax applies. For 2014/15, the rate is 13.3%, reducing to 10% from 1 April 2017. Profits can include a significant part of the trading profit from the sales of a product that includes a patent, not just income from patent royalties.


However, international pressure from the G20/OECD is forcing the UK government to make changes to the regime. The new regime will run in parallel with the existing regime for the next few years although new IP and products will not be admissible to the old regime after 2016.


However, going forwards, claimant companies will need to have good UK substance and qualifying IP income that can benefit from the patent box will be restricted by reference to the total R&D and IP acquisition expenditure of the worldwide group.


And in a world where the detailed form of the tax incentives for innovation often changes, as illustrated above, it also pays for businesses to regularly review existing activities to ensure that they are getting the most out of the reliefs available.


Kate Mitchell PwC


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