Business MAsterclasses - Accessing Finance

1. Tax Credits & Patent Box
Dave Mouncey
Partner
Smith & Williamson LLP

2. Disclaimer
This seminar is of a general nature and is not a
substitute for professional advice. No
responsibility can be accepted for the
consequences of any action taken or refrained
from as a result of what is said.

3. R&D tax credits – what is it worth
to you?
• Enhanced tax deductions for qualifying R&D costs to
reduce taxable profits or increase tax losses
– For SMEs, tax relief is now 225% of original cost
– For large companies, relief is 130% of original cost (but new
rules proposed for on an “above the line” tax credit from 2013)
• Loss-making SMEs can claim payable tax credit of 11%
of enhanced deduction (PAYE/NIC restriction abolished
for periods ending after 1 April 2012)

4. SMEs
• Defined by EC
• Fewer than 500 employees, AND
• Turnover up to €100m, OR
• Gross assets up to €86m
• Watch changes in status/years of grace

5. What is R&D?
“a project that seeks to achieve an advance in
science or technology … through the
resolution of scientific or technological
uncertainty”
2004 DTI Guidelines on R&D

6. What is R&D?
• The project may:
– Extend overall knowledge or capability
– Create a process, material, device, product or service that
incorporates or represents an advancement
– Make an appreciable improvement to an existing
process, material, device, product or service through scientific or
technological changes
– Use science or technology to duplicate the effect of an existing
process, material device, product or service in a new or
appreciably improved way

7. Which costs can be claimed?
• Staff costs
• Consumable and transformable items
• Software
• Subcontracted R&D (SMEs only)
• Externally-provided workers (i.e. through an agency)
• Contributions to qualifying research bodies (large
companies only)

8. Common pitfalls
• R&D lost in accounts
• Capitalised R&D
• Employees/externally provided workers/ subcontractors
• R&D subcontracted in
• Two year time limit missed
• Poor presentation to HMRC

9. Maximising claims
• Claim can be made annually as part of company tax
return
• Claim can also be made within two years of the end of
the accounting period
• Letter/report should clearly demonstrate that all
conditions are met
• Reduces/eliminates HMRC queries and should avoid
penalties
• Claim reviewed by HMRC in specialist R&D units

10. Patent box regime
“The Patent Box is a key initiative to make the
UK tax regime competitive for innovative high-
tech companies”
Exchequer Secretary

11. Patent box regime
• To encourage innovation in a 'practical and competitive
regime'
• Legislation now enacted
• Companies only by election from 1 April 2013
• 10% effective tax rate from 2017 – phased in from 2013
• Applies to income from patents and patented products
registered with UK and European Patent Offices, and
specified EEA states

12. Patent ownership conditions
• Patents must be owned or licensed-in on exclusive
terms.
• The group in which the patent is owned must have
played a significant part in the patent’s development or
the development of a product including it.
• The company in the group holding the patent must
actively manage its portfolio of qualifying patents if the
patent is not self-developed.

13. Profit calculation
• Profits can be apportioned to patents by pro-rating to
qualifying turnover or by “streaming”
• Qualifying turnover includes worldwide royalties and sale
of patents, sale of inventions protected by the
patent, and infringement income/damages
• Routine return is 10% on, mostly, staff (non-R&D) costs
• Marketing return can be formulaic in smaller cases
• Profits arising before the patent grant can be included
but only at the time the patent is granted

14. What you should be doing now to
maximise the potential benefit
• Consider your existing IP portfolio and future IP strategy:
– What are the patents behind your income stream?
– Are they qualifying or non qualifying?
– Are your patents granted or pending?
– Do you own the patent or have an exclusive licence?
– Do you have qualifying patents that could be licensed to create
new revenue streams?
– Are you inventing solutions to internal manufacturing and
production problems?
– If you don’t currently have any patents should you be looking
more closely at your products or processes to see whether
patenting may be possible in the future?

15. These notes have been produced for the guidance of
delegates at the conference for which they were prepared
and are not a substitute for detailed professional advice.
No responsibility can be accepted for the consequences of
any action taken or refrained from as a result of these
notes or the talk for which they were prepared.

16. Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales
for a range of investment business activities
A member of Nexia International
The word partner is used to refer to a member of Smith & Williamson LLP
Portwall Place, Portwall Lane
Bristol BS1 6NA
Tel: 0117 376 2000 Fax: 0117 376 2001
www.smith.williamson.co.uk

17. Tax Credits & Patent Box
Dave Mouncey
Partner
Smith & Williamson LLP