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New tax reliefs to make the UK more appealing for research and development.
The UK is one of the most attractive tax jurisdictions for companies investing in research and development (R&D), and is set to become even more appealing with the introduction of new tax reliefs.
The recent R&D changes and forthcoming introduction of the Patent Box regime will enhance the UK's reputation as a centre for innovation and enhance the country’s reputation among global businesses looking for a location to undertake their R&D activities and hold the resulting Intellectual Property.
In 2013 the UK government will introduce the Patent Box, a low-tax regime offering generous tax rates on the commercialisation of intellectual property. The UK already provides beneficial tax breaks for expenditure on research and development, and the additional tax savings for post-research activity will make the UK a world leading destination for companies engaged in technological innovation.
Under the Patent Box scheme, companies will only pay 10 per cent tax on worldwide profits generated from patents granted by the UK Intellectual Property Office or the European Patent Office. It will apply to future sales income, licence fees, royalties and income generated from the sale of patents.
The 10 per cent headline rate is higher than some other countries' IP regimes and will also be applied to a broad base. It will only require a single patented component to bring an entire product within the UK patent box regime.
Determining the proportion of profits eligible for the Patent Box regime will require the application of a multi-step formula as set out under the legislation, and companies can approach HM Revenue & Customs to seek an advance ruling on the potential application of the regime.
R&D tax regime
Recent announcements in relation to the UK R&D tax regime demonstrate the government's commitment to promoting innovation and productivity. From 1 April 2012, the rate of R&D relief for small and medium enterprises (SMEs) increased from 200 per cent to 225 per cent.
Because new product development programmes can draw a great deal of cash from a business, R&D relief can be particularly beneficial. HMRC has offices dedicated to evaluation and approval of qualifying expenses. When the tax planning elements are incorporated into a product development programme, qualifying expenditure can be pre-agreed with HMRC and claims submitted at various stages of the development process, improving cash flow.
Subject to consultation, from 1 April 2013 the government intends to introduce an above-the-line R&D credit, which will increase the visibility of the relief for investing companies and their decision makers.
These changes are very positive news for the entrepreneurial companies which play a vital role in our economy and send a firm message that the UK is open for business.
Offshore Technology International vol:1 2013
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