Tax professionals have welcomed two government consultations on reforms designed to support innovation and productivity in the UK.
‘This Government is committed to putting in place the most competitive tax system in the G20 and we particularly want to make the UK an attractive location for innovative industries,’ said David Gauke, Exchequer Secretary to the Treasury. ‘The Patent Box and R&D credits help us create the best possible environment for this.’
Richard Woolhouse, the CBI’s Head of Tax and Fiscal Policy, said: ‘The expansion of the patent box from new to existing patents is a positive development, as are proposals to turn the R&D tax credit from a deduction to an above-the-line credit. Both moves will enhance the UK’s attractiveness as a location for innovation and R&D, by attracting new investment activity and acting to keep existing patent income within the UK.’
Woolhouse added that an effective patent box could boost high-value manufacturing jobs. Together, the proposals ‘should kick-start a wider discussion on how to reward the creation and exploitation of all types of intellectual property’.
Patent Box
The Patent Box will provide an incentive for companies in the UK to retain and commercialise existing patents and develop new, innovative patented products, the Treasury said. Profits attributed to patents will be taxed at 10% from April 2013.
Too many companies have been choosing to move their patents offshore in recent years, said Gauke. ‘This has cost the country valuable jobs in development, manufacturing, and exploitation of patented technologies, which have been attracted to other countries with more favourable corporation tax regimes.’
Comments on the Patent Box proposals are invited by 2 September, and the government intends to publish draft legislation in the autumn. The Treasury has also invited nominations by 24 June for additional members to its Patent Box working group of representatives from business.
R&D tax credits
The government has set out its response to comments received on the R&D tax credits consultation published last November, and is inviting comments on specific policy proposals by 2 September.
The proposals are intended to ‘further simplify’ the scheme and extend the credit so that the costs of more contract workers qualify for relief.
The proposals include moving from the current ‘superdeduction’ to an ‘above the line’ tax credit system; examining whether relief for qualifying indirect activities should be retained; relief for ‘routine’ activities by a subcontractor; removal of the PAYE/NICs cap for the payable credit under the SME scheme; and reform of the ‘going concern’ definition.
The Government also proposes to pilot a process allowing small companies and start-ups to find out what projects will qualify for the credit at an early stage in their development, and will explore the case for moving to an ‘above the line’ credit.
PKF Tax Partner Denise Roberts said relaxation of the rules on the cost of using externally provided workers would be ‘very welcome’. If the government’s suggested system of ‘voluntary advance assurances’ works without too much of an administrative burden, start-ups and fledgling businesses will be able to get some certainty that the R&D work they are planning will qualify for the relief, she added. ‘Getting this relief is often a make or break issue for new companies.’
But Frank Buffone, Partner at Ernst & Young, claimed that the R&D consultation was ‘more of a “to do” list for HM Treasury than offering a clear vision of what the regime should look like’.
Companies need to get involved
Diarmuid MacDougall
R&D Network Leader, PwC
This consultation is good news, with proposals to broaden the cost of agency resource that qualifies, ensure subcontractors who support a customer’s R&D can claim, and remove the PAYE & NI cap on cash claims by small businesses. It is confirmed that businesses are overwhelmingly in favour of changing to a credit that can be recorded in operating costs, reducing the cost of doing R&D rather than tax. Now the focus is on how to implement this and with a 2 September deadline for submissions and summer holidays in between, companies need to get involved quickly.
An appropriate balance
Ian Brimicombe
Head of Group Tax, AstraZeneca
The UK patent box as described in the recent consultation document provides a competitive regime for UK based investment in patent protected intellectual property when compared with regimes in other countries and lower corporate tax rates around the world. The overall framework strikes an appropriate balance between competitiveness, simplicity and administrative ease.
The outstanding questions on which the government has asked for comments are the right areas of focus in order to fine tune the regime and ensure it meets the objectives set out up front. The key next step will be to test the impact of the regime on corporate tax results to ensure that the scope of intellectual property and residual profits as defined will deliver the step change in attracting incremental investment to the UK.
The review of the R&D credits regime is also to be welcomed, focused as it is on ensuring this particular relief has maximum effect on future investment by clearing up boundary issues around qualifying costs and expanding the regime for SMEs.
