The new Finance Bill for this year should be positive for innovative businesses that are interested in developing intellectual property and undertaking research and development within the UK. As part of the upcoming finance bill, any companies that take on R&D projects will be entitled to better tax breaks on their activities.
Companies that qualify for the tax breaks include those that regularly have R&D expenditures. How much of a tax relief they receive depends on if they are an SME or a large corporation. A business falls under the tag of SME if they have less than 500 regular full time employees or turn over 100m euros or less every year. In addition, if their assets are valued at less than 86m euro they may also fall into the category of SME.
Under the current Finance Bill, any business that qualifies as a SME can claim as much as 100% tax relief so if an SME spent £100,000 on R&D then it would receive the same tax relief as a company that spent double that amount. A company that qualifies at the tax rate of 20% would receive £40,000 if they spent £100,000 on their R&D efforts.
As of April 1st of this year, once the Finance Bill is announced, the tax relief bar will be set at 125%, allowing companies to receive much more relief for their R&D efforts and in some instances, when an SME does not qualify for a R&D project, they can still qualify for grants towards future R&D.
The news of the increase in tax relief is great for companies that are used to claiming R&D relief as they will see larger rewards. The only likely problem will be that many companies will qualify for a higher level of relief, but will not realise that they should be claiming it.
Business that may qualify for the tax reliefs in general include those in the industries of software, manufacturing, engineering, and pharmaceutical, although there are many other industries that will also qualify if they participate in new product development or for considering altering their industrial process.
For businesses that are worried about the economic impact of instituting an R&D project the new tax relief may be boost that is needed to make an idea viable. These projects can also be sought after for partnerships, but in this case businesses should proceed cautiously to make sure that their project will still qualify for the tax relief at optimal levels.
Outside of the new tax credits, there are a few other things that are expected to be included in the new Finance Bill. For instance, new patent box rules will be introduced that will allow any profits from a patent that is earned after April 1 to be eligible for a 10% corporate tax rate. This tax rate will be good until April 1st of next year.
Although the R&D tax rate will only be good for the first stages of R&D, the patent box tax credit can continue to be applied although it is only viable for companies that have European or UK patents with extensions to IP that is associated with the agri-chemical and pharmaceutical industries. By the time the legislation is actually published it may be extended to include other sectors as well.