Research & Development Patent Box Nadeem Hussain – Head of … · 2019-11-20 · Nadeem Hussain Head of Tax at Pierce Ben Smith R & D and Chartered Accountant at Pierce. Research

Research & Development

Patent Box

Nadeem Hussain – Head of Tax

Ben Smith – R & D & Chartered Accountant

Research & Development Tax Incentives Patent Box


Welcome

Presenters:-

Nadeem Hussain Head of Tax at Pierce

Ben Smith R & D and Chartered Accountant at Pierce


Background

• Innovation is a key driver of economic growth.

• Government objectives include making the UK the most attractive place in the world to start and invest in technology based businesses.

• Corporate tax incentives to drive this forward include:-• Research and Development Tax Incentive scheme• Patent Box Scheme

Research & Development Tax Incentives Ben Smith – R & D and Chartered Accountant

Research & Development


R & D Agenda

• Background to the scheme.

• How the relief works.

• What is R & D for tax purposes?

• Corporation tax benefits, and risks.

• How to make a claim.


1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

%

United States

Germany

France

United Kingdom

UK future scenario

Why introduced?

• Government goal to raise levels of R & D to 2.5% of GDP by 2014.• Purpose being to ensure the UK remains:-

– A centre of technical excellence; and hence– Keeps jobs in the UK


Number of claims made

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Large company scheme

SME scheme


Value of claims made

0

200

400

600

800

1000

1200

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Large company scheme

SME scheme


General conditions

• Key pre-requisite conditions are:-

– Only available for companies.

– The R & D expenditure must be related to the trade of the company.

– Minimum £10,000 per annum spend (although this has been dispensed with from 1 April 2012).

– Excludes capital expenditure; upon which 100% Research and Development Writing Down Allowances are available.


Grant funding

• If notified state Aid has been received for any aspect of the R & D project at any time, cannot claim under SME scheme.

• Consult with the grant provider to determine the status of the grant.

• Consider making a claim under the Large company scheme.


How the relief works

• Enhanced deduction for qualifying expenditure.

• Reduces taxable profits.

• In certain circumstances losses can be surrendered in return for an immediate cash payment.

• The level of relief depends upon which R & D relief scheme a company falls within.

• For SME’s:-– 1 April 2011 to 31 March 2012 – 200%– 1 April 2012 to 31 March 2013 – 225%


Example 1

• A company makes taxable profits of £100,000 in the year to 31 March 2012 which is taxed at 20% rate. The company incurs qualifying R & D expenditure of £100,000

20%Corporation tax rate

£0Corporation tax payable

20%Corporation tax rate

£20,000Corporation tax payable

£100,000Taxable profit without R & D Claim

(£100,000)Enhanced deduction for qualifying R & D

£0Taxable profits after R & D Claim

£100,000Taxable profits without R & D Claim


Example 2

• A company makes trading losses of £100,000 in the year to 31 March 2012 which is taxed at 20% rate. The company incurs qualifying R & D expenditure of £50,000. PAYE payments of £100,000 have been made.

£12,500Tax credit available at 12.5% on lower of (A) and (B)

£50,000Enhanced deduction for R & D Claim

£150,000Trading losses after R & D Claim (A)

£50,000Qualifying expenditure

£50,000Enhanced deduction of £50,000

£100,000Total expenditure available for surrender (B)

£100,000Trading losses without R & D Claim


Post 1 August 2008< 500 Employees

and

orBalance sheet totalling no

more than €86m

Annual turnover notexceeding €100m

SME or Large Scheme?

• The figures relate to the total for the group rather than just the individual entity.


What is R & D for tax purposes?

• R & D takes place when:-“A project is undertaken that seeks to achieve an

advance in science or technology.”

• Activities which directly contribute to achieving the advance through the resolution of scientific or technological uncertainty are R & D.

• A scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve that in practice, is not readily available or deducible by a competent professional working in the field.


Time lines – defining R & D



Example

• Step 1 – Guinness will have done a market appraisal to consider if there was demand in the home consumer market for its smooth flowGuinness.– This does not constitute R & D.

• Step 2 – Guinness marketing will have confirmed the demand and presented to its engineers the requirement.– R & D is about to begin.


Example continued

• Step 3 – Engineers will begin researching solutions, go on training courses to understand de-aeration, and will consume materials to make prototype solutions to resolve the problem of de-aerating the product in the home.– These activities constitute R & D.

• Step 4 – After many failed attempts, engineers develop a prototype that overcomes the technical issues.– R & D has come to an end with the working prototype.

• Step 5 – A patent is applied for to protect the technology.– The application for a patent indicates a solution may have been

identified – this is not R & D.


Example continued

• Step 6 – The solution, being the widget, is implemented in production.– Unless there are technical issues in industrial up scaling, there is

no R & D.

• Step 7 – After 6 months customer feedback highlights cans overflow when the liquid is warm.– R & D is about to start again to resolve a new technical problem.

• The resolution to all of these problems was the floating widget!!



Qualifying R & D expenditure

Is expenditure upon:-

• Staffing costs.• Consumable items.• Software.• Externally provided workers.• Subcontracted R & D.• Qualifying indirect activities.

Presentation of qualifying expenditure:-

• Intangible assets.


£54,000£24,00054.00%24.00%

£56,250£25,00056.25%25.00%

£45,000£20,00045.00%20.00%

Tax saved on £100,000 spend

with claim

Tax saved on £100,000 R & D spend without

claim

Corporation tax rate after

enhanced relief

Corporation tax rate

Corporation tax benefits


Risks of making a claim

• Investment of time required by the company in obtaining details and figures from which to make the claim.

• HMRC aspect enquiry into the R & D Claim.

• If an amended return is filed, it reopens the time window into which HMRC can enquire into the return.

• File a report with HMRC to mitigate the above risks.


What to do now?

• Review your company’s research and development efforts, both in recent years and intended work.

• Discuss your potential claim with your company’s advisors.

• Consider whether the resultant technology may qualify for a patent.

Patent Box Nadeem Hussain – Head of Tax

Patent Box

• New legislation for charging lower rates of corporation tax.

• Phased in over a five year period, beginning 1 April 2013.

• Will ultimately reduce the rate of corporation tax on qualifyingpatented technology to 10%.

• Available to worldwide income derived from UK and European registered patents on both existing and new patents.


Patent Box Phase In

10.0%100%2017/18

11.3%90%2016/17

12.6%80%2015/16

13.9%70%2014/15

15.2%60%2013/14

Effective comparative corporation tax rate

% of full benefitFinancial Year


Basic Conditions

• Own or exclusively licence.

• Needs to be actively managed.

• Existing or new patents.

• Small part of whole product may allow all income relating to theproduct to qualify.


A Tick in Every Box?


Which Profits?


What to do now?

• Are the qualifying ownership requirements met?

• Have your licensing-in agreements been reviewed?

• Consider whether to immediately elect into the scheme.

• Consider timing of disposals of intellectual property.

• Do your accounting systems need to be modified?

• Are you in touch with a Patent Attorney to discuss patents?


Key points• Review all your R & D activities.

• Review existing patents for compliance.

• Consider timing of disposals of intellectual property.

• Contact your advisors to make an R & D claim and discuss the Patent Box.

• Contact your Patent Attorneys to review existing, pending and new Patents.


Nadeem [email protected]

Ben [email protected]

Documents

Research & Development Patent Box Nadeem Hussain – Head of … · 2019-11-20 · Nadeem Hussain Head of Tax at Pierce Ben Smith R & D and Chartered Accountant at Pierce. Research