The Autumn Budget published on November 22, 2017 contains – unsurprisingly – a number of measures relevant to IP tax (unsurprising, because the UK government seems to think that tech will save the UK from the perils of the Brexit decision).
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 …
Part of the Budget papers included a paper headed “Guidance on avoidance schemes involving the transfer of corporate profits” – at first glance, it looked like guidance on the total return swap scheme that was blocked in December 2013. But … it goes a bit further.
On a quick skim through the Budget papers, IP tax impact of the Budget is as follows:
– R&D repayable tax credit for SMEs going up to 14.5% from 11% for expenditure on/after 1 April 2014: means the government will contribute (in effect) 32.625% of R&D expenditure for loss-making SMEs. Might be time-limited, as the Impact Note seems to suggest no cost to the Exchequer from 2016-17, but that might just be that they haven’t worked out the figures.
– video games tax relief being tweaked to make it EU compliant, and to clarify that separate trade requirement is only for games for which relief is claimed. Similar point for tv relief – only programmes for which relief is claimed need to be treated as separate trades.
– theatrical production tax relief to be introduced, with consultation coming soon on the design of the relief (do any theatre companies actually make a profit for which they could get tax relief? I may be being cynical …)
– introducing an exemption from insurance premium tax for insuring certain risks relating to space satellites (the mind boggles …)
– update to tax rules to prevent duplicate capital gains relief on reinvestment of gains on disposal of tangible assets into the acquisition of an intangible fixed asset (pre-19th March 2014 claims to be adjusted when calculated future tax impact); there’s arguably a drafting error in CTA 2009 that could lead to double tax relief, although HMRC are “confident that the courts would recognise [it] as a drafting error”.
– R&D allowances to be excluded from the loss-buying anti-avoidance rules: sorting out a snafu in last year’s Finance Act, rather than a radical change.
– annual investment allowance going up to £500k until December 2015: applies to all businesses, not just those with IP. Mostly political posturing, as not all that many businesses spend more than the current £250k allowance on plant & machinery etc during the year (annual investment allowance enables expenditure on these items to be deducted in full on purchase, instead of being deducted in tranches over several years). When originally introduced, the allowance was £50k and was considered to cover the annual qualifying expenditure of over 95% of all UK businesses. So a £500k limit isn’t going to make much difference to the majority of businesses.
– capital gains tax relief on reinvestment in SEIS shares will be made permanent: applies to all start-ups, and is intended to make investment more attractive (investors get income tax relief and capital gains tax relief on the investment).
– online (and other remote) gambling will be subject to UK gambling taxes if aimed at UK customers
Well, we have the shiny brand new patent box proposals coming in April anyway, so there were no big expectations of this Budget – just as well, really!
There was one ‘direct’ IP announcement – the above the line R&D relief for large companies is increased to 10%, from the originally proposed 9.1%. This doesn’t sound much of an increase, but it’s a large improvement on the 6% that the current large company relief would be worth when the 20% corporate tax rate comes into effect. A blog post on ATL is in the works …
A ‘coming soon’ announcement was also hidden in the Budget documents – the Government plans to introduce consultation on tax reliefs for the visual effects industry. Presumably these will be modelled on the film/quality tv/animation/video games reliefs that we already have, but there’s no detail yet beyond the announcement of consultation.
There were quite a few indirect announcements – things that will benefit IP companies by benefiting companies and sectors in general, including:
– the 20% corporation tax rate: a bonus for large companies, and fairly predictable
– the NICs allowance of £2,000 per business, reducing the costs of employing people
– the extension of the capital gains tax exemption on investment via SEIS: useful for startups looking for funding
– then the grants etc funding, including £1.6bn for Industrial Strategy, part of which will go into a £2.1bn fund for aerospace; a £15m competition for digital content production; and £8m for the Skills Investment Fund, focussed on the digital content sector
– and finally, various initiatives intended to make it easier to raise finance. In theory.
So what’s in this year’s Budget? Most of the new stuff in the Finance Bill we already know about (patent box, changes to R&D etc). Nevertheless, some new and useful things directly for IP came sidling out of the red box:
New creative industries relief
Much requested, here at last!
- Video games industry relief
- Quality TV (“Birdsong” was the Chancellor’s example) relief
- TV Animation relief (aka the “Wallace and Grommit relief”)
These reliefs are intended to come into play in Finance Act 2013 (so, probably, from 1 April 2013) – but will need EU State Aid approval, so this isn’t writ in stone. There will be consultation over the summer but it wouldn’t be highly surprising to see the new reliefs echo the existing film relief.
VAT relief for European Research Infrastructure Consortia (ERICs)
Secondary legislation will be introduced in autumn 2012 to provide VAT relief for European Research Infrastructure Consortia – no more details yet.
Patent box update
Various tweaks have been announced:
- the legislation has apparently (not yet published) been clarified to ensure that that worldwide income from inventions covered by a qualifying UK or European Patent Office patent is included.
- extending qualifying IP: in addition to patents granted by the IPO and EPO the Government intends to extend the Patent Box to other EU Member States which have similar examination and patentability criteria as the UK. A list of qualifying patent jurisdictions will be published as secondary legislation in 2012.
- the heads of expenditure included in the amounts which have to be marked up have been clarified; and
- the small claims safe harbour that previously applied to all companies has been limited to companies making profits with residual profits of no more than £3 million.
R&D tax credits update
As announced late last year, there will be a new ‘above the line’ R&D tax credit in Finance Bill 2013 to encourage R&D activity by larger companies. The Government will consult on the detail (supposed to be published today, but no sign of it so far). It will ensure that SME R&D incentives are not reduced as a result of this change, thankfully. The above the line credit is useful to larger companies in particular, where the value of the R&D credit isn’t always seen in the R&D department, as it’s a tax item. Ensuring it’s related to the R&D costs in the accounts would help here; the above the line credit would also have to be repayable (otherwise the auditors probably wouldn’t allow it in the accounts of a loss-making company).
Not specifically IP but useful to IP companies:
Employee share option schemes
The EMI share option scheme rules are being amended from April 2013 (subject to EU approval) so that gains made on shares acquired through exercising EMI options on or after 6 April 2012 will be eligible for capital gains tax entrepreneurs’ relief, and the Government will consult on ways to extend access to EMI for academics who are employed by a qualifying company (for biotech spinouts, most likely). The EMI scheme allows companies to give employees options over shares with income tax – and now capital gains tax again – advantages.
Investment – relaxing EIS & VCT rules
The EIS and VCT schemes allows small companies to raise cash with tax relief for the investors. The changes will widen the definition of shares which qualify for relief; and remove the £500 minimum investment limit.
Subject to State aid approval, legislation will also be introduced in Finance Bill 2012 to increase the thresholds for the maximum size of qualifying company for both EIS and VCTs and the maximum annual amount that can be invested in an individual company under all the venture capital schemes.
The quid pro quo, because there had to be one, is that the total investment which a company can receive in one year will be £5 million in total from any State-aided risk capital measure, including EIS and VCT.
Corporate tax rate
The company main tax rate is being cut again – it will be 24% from April 2012 (rather than the 25% previously announced) and will be 22% by April 2014 if the Chancellor doesn’t cut it again!
I’ve been thinking about doing a podcast for a while, and decided to experiment with a podcast on the highlights of the Budget for IP. It should stream in the browser, let me know if you want to hear more in future.
- R&D tax relief increased for SMEs to 200% in 2011 and 225% in 2012
- R&D tax credit repayment no longer restricted by PAYE/NICs
- R&D large company relief to include sub-contractor costs
- Patent box to have more consultation – still 10%, still patents only, applying from 1 April 2013
- Capital allowances for short-life assets now 8 years – useful for capital expenditure that doesn’t qualify for R&D allowances, and exceeds the annual investment allowance
- Reductions in corporate tax rate useful to all companies
- Enterprise Zone changes could be attractive
- 24 new University Technical Colleges to be established
Immediate updates on IP-related Budget thoughts will be posted on twitter – a more detailed update will be posted here when I’ve had time to read through the inevitable small print that arrives after the Chancellor sits down!
What’s expected on IP tax (at least):
- an update on CFCs – should have some IP content to it
- update on the consultation on IP tax and R&D which closed on February 22nd
- more information on the patent box (in the consultation update)
There might be more …
The US Treasury has released the 2012 Green Book (the catchier title for the “General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals” – the 2012 US Budget!). There are three key IP-oriented measures proposed. The first, discussed below, is taxation of “excess returns” on intellectual property. The second, to be discussed in a following blog post, seeks to limit shifting of income through IP transfers. Finally, and also to feature in a future post, is the enhancement and making permanent of the R&E (research and experimentation) tax credit.