Presentations from Horizon 2020 Information Seminar held at Hilton Hotel 28th November 2013

1. The Northern Ireland
Corporate Tax Office
(NIrCTO)
David Stewart

2. Aims
To help promote NI:
• Inward investment
• Local expansions
• Research & Development Tax Relief
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3. R&D Tax Relief - Brief overview
• Relief for qualifying revenue expenditure on R&D.
• Where a project seeks to achieve an advance in science or
technology
• Which is not readily available or deducible by a competent
professional working in the field.
• Must be an advance in overall knowledge or capability in the
field – not just the company’s own state of knowledge or capability.
• (100% RDA’s are available for capital expenditure).
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4. Further considerations
• Focus on the advance being achieved and not the industry or
product aspiration, specification or design.
• Involve the R&D staff in the process.
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5. Possible commercial project time line –
defining R&D for tax purposes
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6. R&D tax Relief - How the relief works
The level of relief available depends upon which R&D relief
scheme a company falls within.
•
The small or medium company (SME) scheme - enhanced
deduction of 225% of the company’s qualifying expenditure.
(Previously 200% up to 31 March 2012).
11% repayable credit for R&D losses
•
The large company scheme - enhanced deduction of 130%
of the company’s qualifying expenditure.
No repayable credit for R&D losses.
•
New 10% research & development expenditure credit (Above
The Line credit) - introduced from 1 April 2013 for large companies.
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7. SME or Large
Pre 1 August 2008
Post 1 August 2008
< 250 Employees
< 500 Employees
and
and
Annual turnover not
exceeding €50m
Annual turnover not
exceeding €100m
or
or
Balance sheet totalling no
more than €43m
Balance sheet totalling no
more than €86m
This extended post 1 August 2008 definition is for R&D Tax
Relief purposes only.
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8. Qualifying R&D expenditure
Is expenditure on:
•
Staffing costs (CIRD83000/83200) (includes salary costs, bonuses,
employers NIC, pension contributions, but no benefits in kind).
•
Consumable items (CIRD82300/82400) (Includes water fuel and power)
•
Software (CIRD82500) (revenue expenditure on software directly employed
in R&D activity)
•
Externally provided workers (CIRD84000/84100) (If unconnected, 65% of
the expenditure qualifies)
•
Subcontracted R&D (CIRD84200) (If unconnected, 65% of the expenditure
qualifies)
•
Contributions to independent research (Large Scheme only) (CIRD82200)
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9. Grants & Subsidies (Main Principles)
SME Scheme
•
Grants & subsidies are deducted and the R&D claim is made on
net allowable expenditure. (If grants are Notified, no claim is possible under the SME scheme,
but you may still make a claim under the Large scheme or ATL credit).
Large Company Scheme
•
Grants & subsidies are not deducted and the R&D claim is made on
gross allowable expenditure.
Note
- The grant receipt is taxed under the normal taxing provisions.
- Grant receipts are not conclusive evidence of R&D for tax purposes and do not necessarily correlate to the
qualifying R&D expenditure.
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10. Grants – practical examples
A Ltd a SME spends £100k on qualifying R&D with a £40k subsidy which
is a notified state aid (to include ‘Grant for R&D’ etc):
• R&D Costs
£100,000
• Less funding
£ 40,000
• Net project cost
£ 60,000
No Claim Under SME scheme BUT can claim under Large scheme
R&D tax relief
£100,000 @ 30% =
£30,000
Tax saved enhanced exp
£ 30,000 @ 23% =
£ 6,900
Plus accounts deduction
£100,000 @ 23% =
£23,000
Total tax saved
£29,900
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11. Grants – practical examples
A Ltd a SME spends £100k on qualifying R&D with a £40k subsidy which
is not a notified state aid (to include Horizon 20:20):
• R&D Costs
£100,000
• Less funding
£ 40,000
• Net project cost
£ 60,000
R&D SME tax relief
£ 60,000 @ 125% =
£75,000 Plus
R&D Large tax relief
£ 40,000 @ 30% =
£12,000
Tax saved enhanced exp
£ 87,000 @ 23% =
£20,010
Plus accounts deduction
£100,000 @ 23% =
£23,000
Total tax saved
£43,010
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12. How R&D Relief is claimed
• In full company tax return at end of accounting period.
• Outline of the project
• Outline the scientific or technological uncertainties to be resolved.
• Detail the allowable costs on direct resolution.
• Backdated claims possible
(within the anniversary of the filing date – generally 2 years after the end of the accounting period).
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13. A SME practical example
Costs
Allowable
R&D staff (x3) with total costs £150,000 and
80% of time directly on R&D
£150,000 x 80% allowable as staff costs
£120,000
R&D Manager’s costs £100,000 with 20%
of time directly managing the R&D activity
£100,000 x 20% allowable as staff costs
£20,000
Heat & light £5000 with 25% consumed
in R&D project
£5,000 x 25% as consumable items
Disposable laboratory equipment consumed £200
£200 as consumable items
£80,000 payments to an unconnected
subcontractor for specific R&D work
65% of payments allowable as
subcontracted R&D
£80,000 x 65% = £52,000
£70,000 payments to unconnected staff provider
for staff directly engaged on R&D
65% allowable as an externally
provided worker
£70,000 x 65% = £45,500
Total qualifying expenditure
Qualifying Expenditure
£1,250
£200
£238,950
SME Scheme enhanced expenditure
£238,950 x 225%
£537,638 claimed at Box 101 on CT 600
SME Scheme enhanced R&D Relief @ 225%
£238,950 x 125%
Additional deduction due £298,687.50
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14. Help and Further Information

R&D - HMRC website at:
http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm

The HMRC Corporate Intangibles and Research & Development
(CIRD) Manual at:
http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD80000.htm

Croydon R&D Specialist Unit
Tel 03000 511811

Manchester R&D Specialist Unit
Tel 03000 511811
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15. www.hmrc.gov.uk/nircto/invest-in-ni.pdf
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16. The Patent Box
•
•
•
•
•
Context
What is it?
Overview of main conditions
What profits qualify?
Questions
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17. Patents and R&D
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18. What is it?
 Allows limited companies to tax qualifying profits earned from its qualifying
patents or patented inventions at 10%)
 Phased in from 1 April 2013 with full benefit by 2017
 An optional regime so companies must elect in – No special form.
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19. Main conditions
 Company must hold a qualifying UK or EPO patent or an exclusive licence to
develop such rights. Limited other EEA jurisdictions also apply.
 Regime also applies to rights similar to patents relating to human and
veterinary medicines, plant breeding and plant varieties.
 Development Condition – the company must have created or significantly
developed the patented invention.
 Active Ownership Condition - for group’s, the company must have either
developed the IP itself or be actively managing it.
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20. What profits qualify?
1.
Sales of the patented item or items incorporating it
2.
Royalties from licensing
3.
4.
Sales of qualifying patented rights
Infringement income
And:
5.
Using a patented process to produce non
patented items
6.
Notional
Royalty
Using patented items to provide a service
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21. The Patent Box Profits
Corporation Tax Profits
10% tax
23% tax
23% tax
23% tax
23% tax
23% tax
23% tax
23% tax
23% tax
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22. Marketing Asset Return - Brands
 This adjustment aims to exclude the sometimes very substantial profits
generated by established brands and to arrive at profit attributable to patents.
 Simplifications:
 If brand profit is less than 10% of the profit remaining after deducting the
routine return, then there is no need to make an adjustment.
 Special treatment for “small claims”.
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23. Help and Further Information

HMRC website at:
http://www.hmrc.gov.uk/ct/forms-rates/claims/patent-box.htm

The HMRC Corporate Intangibles and Research & Development
(CIRD) Manual at:
http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD200000.htm

The Croydon R&D Specialist
Unit
Tel 03000 511811

And finally…
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24. The Northern Ireland
Corporate Tax Office
(NIrCTO)
www.hmrc.gov.uk/nircto/index.htm
Tel 03000 599 000