Summer Budget 2015 – summary of the IP angles
The Summer Budget took a few sideswipes at IP tax in passing – the biggest issue being likely to be the removal of amortisation for acquired goodwill (and so any unregistered IP included therein, probably) and customer-related intangible assets. There were some good points as well, although those were mostly in the realm of general improvements in the corporate tax field.
The one thing not mentioned is the patent box – which, following the OECD BEPS announcements earlier this year and the UK/German agreement last year, is supposed to be amended/updated by legislation in 2015. Presumably it’s been put off to the Autumn Statement and the draft 2016 Finance Bill …
General points – for all companies
Firstly, the government focus on reducing corporation tax continues – so that tax cost (not just for IP-focussed companies) will lower from the current 20% to 19% in April 2017 and 18% in April 2020 (ie: just in time for the next election …)
The Annual Investment Allowance – the amount of annual capital expenditure on plant & machinery that can be deducted from taxable profits in full immediately, rather than drip-deducted over 20-30 years – will be set permanently at £200,000. It’s been ping-ponging from £25,000 to £500,000 and various points in between over the last few years, so settling it down is useful. This will benefit companies spending money on computers and other such equipment (and those spending more than £200,000 a year shouldn’t forget the R&D capital allowance as well).
Companies acquiring goodwill and customer-related intangible assets (undefined) will no longer be able to deduct amortisation for tax purposes – this is taking things back to the position before April 2002, for acquisitions on or after today (8th July 2015), unless there was a binding obligation to purchase entered into before 8th July 2015. The information note suggests that the government has suddenly noticed that this creates an incentive for companies to acquire the trade & assets of another company, rather than the shares in that company, and seems to think that this is somewhat unreasonable.
That line of thinking overlooks the fact that it can often be more expensive in tax terms for the vendor to sell the trade & assets of a company rather than the shares, particularly where the goodwill is actually worth something … and amortisation of goodwill was hardly accidental in the 2002 intangibles rules, as the rules specifically allow for a deduction even where the accounts don’t include amortisation for goodwill.
What exactly is meant by “customer-related intangibles” hasn’t been fully defined – could be anything from customer lists to trademarks (and the Budget papers refer to “assets linked to the business’ reputation and customer relationship”, so probably will include trademarks).
RDEC – correcting unintended consequences
The R&D expenditure credit for large companies is to be modified to make it clear that universities and charities are not supposed to be claiming it – they apparently have been, presumably in pursuit of the repayment available for loss-making companies. The large company super-deduction relief was not available to universities or charities, either, so this is at least consistent, and follows the focus on trying to ensure that the reliefs are targeted at industrial R&D.
Note: this does *not* affect university spin-outs – it’s addressed to the independent research of universities and any subcontract work that they might try and claim for as well. Spin-outs are separate entities and unaffected by the change.
Venture capital investments – refocussing
The venture capital reliefs (such as EIS, SEIS, VCT) are to be reshaped to make it harder for businesses to claim the relief without certain types of activity and function, and also making it harder for existing shareholders to get EIS/SEIS on additional investments in the same company. The business-focussed restrictions seem to be largely sparing knowledge-intensive businesses, giving higher qualifying thresholds.
Non-tax – what might be coming along
The main details in the Summer Budget were tax related, but there was also the announcement of a “productivity plan”, which will be published with measures to “encourage long-term investment in economic capital, including infrastructure, skills and knowledge” – presumably including from IP-related matters in there somewhere.
There was also an indication of investment “in 6 Next Generation Digital Economy Centres over 6 sites (London, Swansea, Newcastle, Nottingham, York and Bath)” and the “government will invite universities, LEPs, businesses and cities to work with central government to map strengths and identify potential areas of strategic focus for different regions through a series of science and innovation audits” (no indication of any new money for that …).