"All change for smaller businesses: tax benefits
It is well known that small and medium sized enterprises (SMEs) are important for innovation and job creation. It was acknowledged in the Review of Civil Litigation Costs by Lord Justice Jackson, published in January 2010, and more recently, in the Hargreaves Review of Intellectual Property and Growth, published in May 2011, that more needs to be done to assist SMEs with their intellectual property rights in the UK. A number of measures and reforms have since been introduced to achieve this purpose. These include reforming the Patents County Court (PCC) and introducing various tax reliefs. In addition, the IPO is currently consulting on proposals to expand the subject matter of its opinion service and to increase its ability to file revocation actions in relation to patents which it opines are invalid.Next week: All change for smaller businesses -IPO Reform
This blog looks at the proposed tax benefits.
The Patent Box will be available to all businesses within the scope of UK corporation tax, including SMEs. It will be phased in over a period from 1 April 2013 to 1 April 2017, assuming that an election for the regime to apply is made. To be eligible, the SME needs to own, or hold an exclusive licence for a qualifying IP right, which they have contributed to the development of, or incorporated into a product, and receive income related to that right. The result is that SMEs could find themselves paying only 10% rather than 20% tax on income related to a product protected by an IP right, including royalties and compensation for infringement.
Additionally, some improvements have recently been made to R&D tax relief. The rate of additional deductions for SMEs will be increased from 100% to 125% (giving rise to a deduction of 225% in total) and the rule capping the amount of any repayable tax credit by reference to the company’s PAYE/NIC liability will be removed. To offset this, the repayable tax credit will be reduced to 11% of the surrenderable loss (from 12.5%, having already been reduced from 14% in April 2011). Additionally, the definition of an “externally provided worker” will be widened to allow more costs to qualify, the minimum expenditure threshold of £10,000 a year will be removed, and the existing definition of “going concern” will be clarified to ensure that companies in administration or liquidation cannot benefit.
R&D tax relief, which can be extremely valuable to SMEs, is often overlooked by them. This is mainly due to the complexity of the legislation and the difficulties in identifying qualifying activities, especially given the frequent changes made by the government to the regime since its introduction in 2000. It is thought that identifying qualifying revenue for the Patent Box will be more straightforward, although some SMEs have expressed concerns that it may be uneconomical for them to claim the tax break due to the advisory and administrative costs required to file a claim.
Following confirmation of the Patent Box in the 2012 Budget, GlaxoSmithKline announced it would invest more than £500m in the UK across its manufacturing sites. This includes £350m for a state-of-the-art biopharmaceutical manufacturing facility in Ulverston, Cumbria and more than £100m across its two manufacturing sites in Scotland, to manufacture key materials for its portfolio of respiratory medicines and vaccines, and to increase production capacity for antibiotics. Hopefully, many SMEs will follow suit and take full advantage of the available tax reliefs in the UK".