Monthly Archives: June 2011

UK: R&D consultation, next round

In addition to the patent box paper, the Treasury also published the next round of R&D consultation – this is rather more a summary of responses to the last consultation than new information.

In summary:

  • not ruling out ‘above the line’ R&D relief/credit but the Government still needs to be convinced
  • large company subcontractor costs to qualify for the subcontractor only where the subcontractor is aware that it is qualifying R&D and has evidence to this effect
  • no plans to extend qualifying expenditure to cover (eg) rent of premises used for R&D
  • draft legislation in the Autumn to allow a wider range of externally provided workers to qualify
  • no plans to restrict internally created software from being qualifying costs
  • improved guidance on whether prototypes will be qualifying R&D – whether the ‘uncertainty’ principle applies
  • plans for a pilot scheme will be brought in during the Autumn so that small companies and start-ups can get advance assurances that can be relied on in making R&D claims for several years

The Government is looking for specific responses (by 2 September 2011) on:

  • qualifying indirect activities: should the relief be retained?  (QIA are hard to define and harder to get relief for)
  • should there be some form of certification or election process to provide certainty for subcontractors as to whether the work they are doing is R&D?
  • does the removal of the PAYE/NICs limit on the repayable credit require any safeguards?
  • does the ‘going concern’ definition need to be reformed, to make it closer to that for EIS/VCT?

UK: Patent box – latest consultation paper

The Treasury has published (a few days later than originally advertised) the next round of consultation on the patent box (pdf).

In summary:

  • extended to plant variety rights, data exclusivity and supplementary protection certificates
  • will apply to UK and EPO patents only
  • will apply to all UK and EPO patents, no matter when commercialised or granted
  • to be phased in over 5 years, from 2013/14 – full benefit not until 2017/18
  • a seriously complex round of computations will be involved, with analysis of income and expenses across the company and possibly by division required

Responses to the consultation are requested by 2 September 2011.

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Internet: Plus ça change – taxing electronic cash*

Bitcoins have suddenly been the subject of flurry of articles in places like the New Scientist (probably because a Swedish IT entrepreneur, Rickard Falkvinge, has announced that he’s putting his money into Bitcoins), with some more hysterical commentators declaring that Bitcoins are a danger to governments because they “can’t be taxed”.  I thought I’d add this article to the flurry, to examine that hypothesis.

In summary, governments don’t generally care what format your wealth change is in; they will want the tax paid in their local currency, but are quite happy to let you earn it in anything you like – including Linden dollars, for example (to take a mild blast from the past).  You need to declare it on your tax return (translated to local currency) when it increases your wealth; whether or not the Government can easily find out about it is irrelevant to a taxpayer’s obligations under law.  To be pedantic (no doubt a first for a tax lawyer), the hysteria also misses the point that currency itself is not generally taxed (except in the case of collectible coins, for example) – tax is based on changes in wealth, which are usually measurable in currency of one format or another.

The main tax question is: when does a virtual currency increase your wealth for tax purposes?

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