TaxCorporate TaxR&D reforms will encourage innovation, say advisors

R&D reforms will encourage innovation, say advisors

Patent Box to offer reduced rate of tax on profits derived from inventions

THE GOVERNMENT has confirmed that patented inventions will be subject to a reduced rate of corporation tax on profits.

The “Patent Box” allows companies to pay a 10% rate on profits made from patented products, compared with the full corporation tax rate, and will benefit pharmaceutical companies among others. At the same time, the rules for claiming research and development tax credits have been reformed. The draft Finance Bill has confirmed that there will be an increased tax relief rate and a removal of the £10,000 minimum spend. The government has also relaxed the rules regarding temporary workers.

Adrian Gregory, PwC tax director, said the changes to the patent rules brings the UK into line with other European Union countries.

“The benefits of the regime will apply not only to companies selling a product that includes a patented invention, it will also come into play when patented intellectual property is used in the manufacturing process, to provide a service or to generate licensing income,” Gregory added. “This applies across many industries and sectors and will benefit companies large and small across the UK.”

Kathie Haunton, a director in the R&D tax services team at Deloitte, said the move to “above the line” credit confirmed in the Autumn Statement will ancourage more R&D activity in the UK.

Also, she added: “The strict contractual conditions that prevented many companies claiming the costs of temporary staff have been relaxed. This removes the requirement for the temporary staffing arrangement to only involve three parties: the claimant company, a staff provider and the individual. This welcome change will be effective from 1 April 2012 and enable many companies, both large and small, to increase the value of their R&D claims.”

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