Business Alert February 2012
Introducing the patent box to encourage IP in the UK, VAT on temporary staff and increased ISA allowances for 2012/13.
01.02.2012
Introducing the patent box to encourage IP in the UK, VAT on temporary staff and increased ISA allowances for 2012/13.
Please click on the links below.
Increased ISA allowances for 2012/2013
The 'patent box'
To encourage companies to locate their intellectual property in the UK, the government proposes to introduce the ‘patent box’ – a 10% reduced rate of corporation tax to apply from 1 April 2013 for profits derived from patent rights. The patents covered by the new rules will, at least initially, be only those granted by the UK’s Intellectual Property Office (IPO) or the European Patent Office (EPO).
Who is eligible?
To be eligible for the patent box, you must be actively involved in the development of the patent or the ongoing decision making connected with its exploitation. It cannot simply hold it as an investment.
What income will be covered?
- patent royalties and licence fees;
- income from the sale of products incorporating at least one invention covered by a qualifying patent;
- income from licensing a bundle of intangible assets that includes, as an integral part, at least one invention covered by a qualifying patent;
- compensation and damages for the infringement of a qualifying patent;
- income from the sale of patents;
- (on making an appropriate election) a notional royalty in respect of patents used to perform processes or provide services that do not give rise to income within any of the preceding categories.
How will the relief be calculated?
Taxable trading profit and expenses (after various adjustments) will be measured in proportion to income from qualifying and non-qualifying activities. Alternatively, there is the option to elect to allocate profits and expenses between the two ‘streams’ of income on a ‘just and reasonable’ basis.
The 10% rate will not apply to all the profit apportioned to qualifying activities, but only to the ‘residual profit’; i.e. the additional profit that the company has earned as a result of engaging in intellectual property activities as opposed to ‘routine business activity’. This additional element is calculated by deducting a ‘routine return’ equal to 10% of the relevant tax deductible expenses, after various adjustments.
It is then necessary to separate out any part of the residual profit that derives from intellectual property other than patents, such as valuable brands.
The relief will be phased in over a period of five years, with 60% of the full benefit available in the financial year beginning 1 April 2013 and 10% more in each of the following years until the full relief becomes available in the year beginning 1 April 2017.
What next?
While there is some time to wait until the patent box comes into force, patents granted or ‘commercialised’ now will be within the rules. Companies should therefore take those rules into account in assessing whether to develop current research proposals in the UK.
Contact
John Walker, Director, Corporate Tax
Agency VAT certainty
On what value should employment businesses charge VAT when supplying temporary staff?
HM Revenue & Customs’ (HMRC) policy is that VAT should be charged on the full value of payments made to employment businesses for the provision of temporary workers, where the worker has entered in to a contract of employment or a contract for services with the employment business.
However, in the recent Reed Employment case, the tribunal determined that Reed did not have full control of the worker and was acting solely as an agent. Therefore, VAT should only be charged on the commission.
This should be good news for organisations unable to reclaim VAT in full, such as some financial businesses and charities. However, HMRC has stated that, in its view, the tribunal decision depends on specific facts – hence its policy remains unchanged.
Contact
Scott Craig, VAT Partner
Increased ISA allowances for 2012/2013
ISA allowances are changing from 6 April 2012. Savers will be encouraged to learn that they will be able to invest up to £11,280 into an investment ISA in the tax year 2012/2013 or, they can invest up to £5,640 into a cash ISA, with the remainder available to invest in an investment ISA. This is £600 higher than the limit for the current year.
Increases to the ISA allowance are now based on the Consumer Prices Index (CPI) inflation figure for the year to the previous September. They are then rounded up to be easily divisible by 12. This makes it easier to calculate the monthly allowance, which will be £940 per month for 2012/13. The latest CPI figure will be published on February 14 2012.
The higher ISA allowance represents good news for savers and investors who want to protect their returns from tax and aim to achieve a net return to keep pace with high level of price inflation.
Contact
Morag Page, Director, Personal Tax
