Intellectual property

Can my tech company claim 10% Patent Box relief on software?

Posted on February 28, 2013 by Patent Box 0

The new beneficial Patent Box rules will be introduced with effect from 1 April 2013 and it is important therefore that companies consider how they might benefit from a 10% corporation tax rate.

There is a common misconception amongst tech companies that software cannot be patented (although this misconception is understandable when you take an initial look at the relevant patent law…)

UK patent law excludes:

‘a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer’

from constituting inventions for the purposes of filing a patent; however, the legislation subsequently offers a small crack of light for tech companies by limiting the application of this exclusion.

To understand more we need to refer to relevant case law and this has evolved to the stage where software can be patentable in the UK and Europe where it can be demonstrated that the software or coding makes a technical or inventive contribution to ‘human knowledge’. In effect, we look beyond the fact that the invention is a computer program to the underlying technical contribution or technical solution that it brings about provided it is novel and inventive.

For example, consider a software program that allows imagery to be digitally enhanced or improved. This could be patentable if it can be demonstrated that the technical problem that has been overcome is novel or inventive and therefore results in a contribution to ‘human knowledge’ – it just ‘happens’ to have been achieved using a computer program and therefore this should not preclude a patent. You can envisage software that can solve technical problems for physical hardware e.g. speed of data transfer, as well as solving technical problems related to the software all of which could be patentable.

Both the UK and European patent offices grant patents for software in cases where the facts fit which is crucial for the purposes of claiming the benefits of the Patent Box. The US rules are of little assistance to us here as a US granted patent will not qualify for the Patent Box.

Incidentally, if you find yourself pursuing patents to protect your idea and benefit from the Patent Box – don’t forget about R&D tax credits!

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Keep an ‘i’ on your IP

Posted on October 2, 2012 by Intellectual Property Planning 0

As our businesses evolve, we try new ideas, products and service lines.

Some ideas will fly whilst most will fizzle out.

For the handful of ideas that do become successful, it is important that we take adequate steps to protect any valuable underlying intellectual property that is generated.

This IP protection can take numerous forms from more formal processes including patents, trademarks and copyright to more straightforward internal planning such as ensuring that any intellectual property is identified including where, say in a company group structure, it resides?

For example, do you want your crown jewel intellectual property sat in the same company as your more risky trading activities…?

Might a separate intellectual property holding company be a better, safer option to ring-fence these valuable intangible assets from commercial risk?

At its most basic level – but often overlooked – is whether you have registered the relevant domain name for the new brand / product / service and whether you have incorporated the relevant (dormant) company name for protection?

Taking steps to protect your valuable intellectual property now will help both increase the underlying value of your business for a future sale and future-proof it against the evil plans of potential ‘idea-squatters’.

Similar posts:

How do I make an R&D tax credit claim?

10 need to know facts about the Patent Box

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Ticking the UK patent box

Posted on January 24, 2012 by Intellectual Property Planning 0

The Patent Box lands in the UK on 1 April 2013 as part of the government’s bid to make the UK a more attractive and globally competitive place to do business.

I won’t dish out the detail of the patent box right now suffice to say that it will provide a lower rate of UK corporation tax for patent income (10%). The main rate of corporation tax is currently 26% and will be 24% at the time of the introduction of this new relief.

The patent box is not new – other countries have successfully piloted similar schemes (some EU countries with more attractive patent box rates than our proposed rate) and now the US is taking a serious look.

We already have the R&D tax credit in the UK to reward companies engaged in pushing the envelope of knowledge in the areas of science and technology although some 12 years post intro there are still many companies that are struggling to get to grips with this increasingly attractive tax incentive and many who have yet to make a claim (much to my frustration!).

HMRC recently held a meeting outlining the new patent box relief (slides here). I am not the only one left thinking that once companies have gone to the hassle of calculating the profits attributable to this lower rate, there may not be much eligible for the special 10% tax rate!

This is a good initiative but yet again the implementation of this tax incentive leaves a headache for companies and their advisors. What are your thoughts on what you’ve seen so far?

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Tinkering with tax simplification

Posted on November 10, 2010 by Tax N2K 2

Over 1,000 tax incentives have been identified and collated as part of the first stage of the Office of Tax Simplification work – tax advisers across the UK nod wearily! The next step is to review which tax incentives can be eliminated to ‘simplify’ UK tax. Target date for the first review is the next Budget scheduled for 23 March 2011.

I’m in two minds about this – on the one hand, there is little doubt that UK tax legislation has got way out of hand in terms of complexity (for many accountants lets alone business owners!). On the other, there are many targeted tax incentives which appear to have worked well to promote future growth areas e.g. R&D tax credits and the forthcoming ‘patent box’ (promising lower rates of tax) encourage innovation and enhanced capital allowances encourage investment in greener plant and machinery. There are plenty of other targeted tax incentives aimed at putting our economy on a firmer footing for the longer term future. Look at the Dyson Report on Making Britain a Hi-Tech Exporter and the recent Blueprint for Technology report for further support for targeted tax incentives.

Taxation can be effectively used as a carrot to incentivise investment (both cash and more importantly entrepreneurial zeal) in key growth areas, such as intellectual property-rich digital, tech and creative industries; those businesses and sectors that should provide longer term prospects for a healthy UK and global export economy. So why tinker?

Having said that, the relatively recent announcement to provide new start-ups with a holiday from National Insurance Contributions sounds well placed and simple enough – until you look at the detail (and this is just a summary of the detail!).

Overall, I am concerned that putting an axe to scores of these targeted tax incentives in the name of ‘simplification’ could have far-reaching and painful longer term repercussions for the UK economy. Yet we do need to plot a way through the streams of red-tape and bureacracy facing businesses so things must change.

Welcome your views.

Blueprint for Technology demands an innovative tax blueprint

Posted on November 4, 2010 by Digital North West 0

And so David Cameron continues to make the right noises about making the UK a centre for hi-tech digital, technology and creative businesses – a hub or a ‘UK Silicon Valley’ for the Googles and Facebooks of the future.

DAVOS/SWITZERLAND, 29JAN10 - David Cameron, Le...

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Cameron unveiled his Blueprint for Technology today in East London with a commitment to push through with improvements to UK tax competitiveness, a review of intellectual property laws, freedom of movement of skilled workers, access to funding etc – I won’t summarise all the details as you can read the report in full by clicking here.

Let me kick off my saying that I wholeheartedly agree with Cameron’s focus on investing in intellectual property rich hi-tech digital, technology and creative businesses but I firmly believe that having a business-friendly tax regime and regulatory structure is absolutely key. Given this, I do not believe that the tax measures outlined today go nearly far enough. Okay, we’ll have reduced corporation tax for large companies to 27% and 20% for small companies from next April and there’s a pledge to review the taxation of intellectual property this Autumn but we need more. Far more.

Here are a few suggestions (aka a blueprint for tax) for hi-tech digital, tech and creative UK businesses:

  1. Create Enterprise Zones across the major cities ideally near Universities e.g. Manchester, Birmingham, Cambridge etc which will screen start-ups and fast growth companies for entry to these tax incentivised business parks
  2. These Enterprise Zones (EZ) would allow companies to take advantage of certain tax exemptions and incentives for the first 3 years of trading and then, although they will be entitled to stay thereafter (to build a supportive community), they will be subject to many of the tax rules applicable to businesses outside the EZ.
  3. Hi-tech digital, technology and creative businesses only would qualify for admittance to the EZ (this would include cleantech, medtech and gaming businesses).
  4. Corporation tax rates would be 0% for Year 1, 12.5% for Year 2 and then 20% in Year 3 (or whatever the prevailing small companies corporation tax rate is in Year 3). These rates are similar to in some other countries e.g. tax holidays are available for a certain duration whilst the 12.5% rate mirrors the current Irish corporation tax rate which continues to receive admiring glances from many UK hi-tech companies.
  5. National Insurance Contribution (NIC) holidays would be available for the 3 year qualifying period. There is a temporary general NIC holiday scheme in place at the moment although there are many conditions to satisfy plus the postcode finder for qualifying areas is poor. Under this scenario, if you’re in a qualifying EZ, you qualify. No further questions asked. This way startups and growing businesses can recruit without being hit with penal employer’s national insurance contributions (13.8% from next April). At the very least, I would suggest a tax break from employer’s NIC for the 3 year period.
  6. PAYE would be applied to 70% of earnings of employees of companies in the EZ. This would help encourage skilled workers to take the plunge of joining high risk start-ups and help recruit talent from overseas. The Netherlands has a similar tax incentive in operation.
  7. R&D tax credits would be increased to 200% for SMEs within the EZ (from 175% today) in line with the Dyson Review.
  8. Number of companies set up in a group would not impact on the tax rate within the 3 years (subject to point 4). Currently, if a company decides to set up a subsidiary company (e.g. to test a spin-off concept) then the taxable profit band at which small companies rate is payable is divided by a factor of 2 i.e. as a standalone company it could have taxable profits up to £300,000 and pay tax today at 21% whereas if it set up a subsid company it could only earn taxable profits up to £150,000. By eliminating this rule, companies would then have the freedom to experiment with new ideas and concepts in new companies without getting bogged down with tax considerations. When the 3 years draws to a close, they should be in a better position to know which companies in the group can be consolidated, which ones can be killed off and which ones should be kept.
  9. Income of intellectual property companies should be subject to corporation tax rate at a reduced rate of 5% and this rate would continue to apply beyond the 3 years. This rate looks controversially low but we have to face facts that reducing rates of tax to these sorts of levels is essential if we are to encourage – let alone retain – the Google and Facebook companies of the future. Look around locations across Europe and you will see rates that are not dissimilar. Entrepreneurs owe a duty to their investors to maximise returns and likewise tax advisers owe a duty to their clients to explore best possible options for the long term profitability of their clients. Such planning aimed at shifting income overseas could be stopped in its tracks with these sorts of rates. We have proposals for a reduced rate of 10% corporation tax for patent income, however, the Netherlands already offers 5% for a wider range of intangible income. Remember 5% of Google’s annual income from its brand and other intellectual property is an eye-watering figure – plus there would be employee taxes receipts etc to throw into the mix for the UK Exchequer….tempting?

I appreciate that there is plenty to unpack here but radical times call for radical measures. We are standing on the edge of a huge opportunity. We need to be brave and demonstrate decisive action beyond slick speeches and glossy whitepapers.

George, I hope you’re listening in anticipation of your Budget speech on 23 March 2011.

Before then, I welcome your comments, criticisms and further ideas.

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Future of R&D Tax Credits

Posted on September 1, 2010 by Tax N2K 0

I was asked by a client yesterday whether I thought the UK R&D tax credit system would be around for the foreseeable future?

I answered “Yes”. Here’s a summary of my current thinking:

  • James Dyson‘s Ingenious Britain Report, as commissioned pre-election by the Conservative party into re-energising the British economy, gave the UK R&D tax credit system a whole-hearted thumbs-up – in fact, he recommended that this valuable tax incentive should be further enhanced for innovative high tech UK small companies;
  • The Tories pledged to push forward with a planned review of the taxation of intellectual property this Autumn. The Coalition government is keen to make the UK tax regime one of the most competitive in the G20 and to do so demands a well structured and favourable tax framework for intellectual property – otherwise big multi-nationals look to move their prized assets i.e. their intellectual property (IP) to a more favourable tax jurisdiction and worse, our home-grown talent (- export value – jobs) can be tempted to follow suit;
  • The Autumn review of IP tax is also expected press forward on plans to introduce a new patent box to tax income derived from intellectual property at a lower corporation tax rate – a tax incentive already enjoyed by our Dutch neighbours for example, so it is good to see that UK resident companies should enjoy similar tax benefits in the near future;
  • Generally there appears to be a growing understanding and acceptance (echoed from all political parties: from Alistair Darling to George Osborne to Vince Cable) that the most viable opportunity for rebuilding a long-term sustainable UK economy is to invest in building first class hi-tech innovative and intellectual property rich companies that can export their valuable know-how globally. A recent Nesta report on Rebalancing the UK economy is well worth a read in reaffirming this perspective. In essence: we don’t necessarily have to make the stuff but we can develop the ideas, know-how and proprietary IP for global manufacturers, distributors and retailers to license and sell!

On the negative side:

  • there was a momentary concern in the final stages of the election that the Conservatives would drop the R&D tax regime if elected when they pledged to reduce the headline corporation tax rate and “simplify the corporation tax regime” – could this have meant the death of the R&D tax scheme and other valuable incentives such as capital allowances? (although this proved not to be the case in the Emergency Budget).
  • The Coalition government also put a stop to proposals to introduce a video games tax relief which appears at odds with a perceived overarching aim to focus entrepreneurs on building IP rich digital and technology businesses.

So there have been some wobbles but fingers crossed these are isolated lapses (as a side-note I really hope the gaming tax relief proposals get back on the cards very soon).

What are your thoughts on the future of UK Research and Development tax credits?

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CBI provides blueprint for building a Creative Britain

Posted on August 2, 2010 by Digital Manchester 1

Creating growth – A blueprint for the creative industries is a recently released paper by the CBI aimed at focusing the UK coalition government on doing more to support UK creative and digital industries. Although I think this report provides a good overarching vision of what our UK creatives need from the government to flourish, in my view it is lacking on the specifics in terms of laying out a clearly defined roadmap for achievement.

Here are my initial thoughts on what’s there:

  • Ensure regulation and competition is fit for purpose. Easy to say, harder to achieve given that our successive governments have added 1,000s of pages of tax legislation over the past 10 years (three Finance Acts will be issued this year alone!). The Office of Tax Simplification has recently been launched to help tackle the minefield of tax reliefs and bureaucracy encountered by small businesses and they will report their findings early next year. Don’t hold your breath though in the short-medium term!
  • Ensure the ability to derive value from intellectual property is a subject dear to my heart. In a world where the number one driver of value is increasingly intellectual property (IP) – something that we are darn good at creating in the UK – it is vital that we have a commercial, legal and tax framework that supports its protection and successful exploitation. I am not a lawyer so can’t comment on the UK legal ins-and-outs, however, from a UK taxation standpoint I spend much time advising companies on maximising the value derived and I can say that our tax regime is getting more supportive e.g. we have the popular R&D tax credit regime plus a review this Autumn on the taxation of intellectual property (including consultation on a likely lower rate of taxation on patent income) but there is much farther to go – a video games tax break for example?!
  • Deliver a competitive framework. This mirrors the stated aim of George Osborne in his inaugural Budget speech to make the UK tax regime the most competitive in the G20. The phased reduction in the main UK rate of corporation tax from 28% today to 24% by 2015 is encouraging. Note that small companies (broadly those stand-alone companies with taxable profits less than £300,000 – which will cover most UK creative companies) will pay tax at only 20% from next April (from 21% today). However, it is the PAYE, VAT and the myriad of other ongoing compliance and year end forms that add to the red-tape for small businesses. There is also the vast array of available tax reliefs to claim which is great – but only if your accountant or business advisor tells you about them! :)

What are your thoughts on this report? What does this mean for creative and digital businesses in Manchester, Liverpool and the North West? Does this go far enough?

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