Partner Article

Businesses set for R&D tax fillip

Businesses are set to benefit from two significant tax breaks coming into effect from April 1. There is a new R&D tax incentive for large* businesses, payable in cash ‘above the line’ rather than in the form of a tax ‘credit’ that was only of value to profitable firms as loss-making businesses do not pay tax. And there is a new ‘Patent Box’ regime under which profits derived from patented or patentable intellectual property will be taxed at just 10 percent – less than half the current corporation tax rate of 24 percent (23 percent from April 6).

The Research and Development Expenditure Credit

The Research & Development Expenditure Credit (RDEC) – is an effective encouragement for innovation according to KPMG which large companies will be able to claim in relation to spending on R&D incurred from 1 April.

By being recognised in a business’ financials before tax, the RDEC, worth 9.1% of expenditure costs (pre-taxed), will be a more visible and certain incentive, which can be taken into account by management analysing the investment case for undertaking R&D. It also means the credit can be payable in cash to loss making companies; this is a significant change as the previous R&D tax credit regime could only be offset against corporate tax liabilities by profitable businesses.

Debbie Reith, KPMG’s North East Head of R&D Tax, said: “The new RDEC regime turns a credit, previously buried in the tax computation into a visible income for the business. I’m keen that finance teams across the region know that as it is an optional scheme they must proactively elect to claim the credit, which is sure to make a particularly welcome contribution to large but loss making companies.

“It is a really positive step for UK competitiveness and could even result in a migration of R&D functions, and consequently spending and jobs, to the UK.”

KPMG’s recommended preparation for the RDEC:

Change systems and processes as necessary - real-time procedures may enable companies to obtain benefits earlier than for current R&D Tax Relief claims.
Consider the accounting impact of the RDEC – how the credit will be reflected in the accounts and the level of analysis required for their inclusion.
Include credits when assessing the viability of future R&D projects.

The Patent Box

Also coming in to force on 1 April is the Patent Box – a 10% tax rate for profits generated from patents developed and managed in the UK; another R&D incentive.

“The Patent Box could apply to a great number of companies in Yorkshire across a host of the region’s dominant sectors from low carbon energy to all manner of manufacturing and technology businesses,” commented Reith.
Competitive UK Tax System

Both changes to the UK’s R&D tax credit regime will enhance the economy’s already competitive tax system according to KPMG. The firm has recently released research showing that the UK has - for the first time in the six year history of its tax competitiveness survey - the most attractive tax regime compared to key global competitors, including Ireland, the Netherlands, Switzerland and the US. Based on interviews with senior tax professionals in UK companies about which countries they consider the most attractive from a tax perspective, the UK came first in terms of most commonly cited in the top three.

The reducing corporate tax rate, which will be 21% from April 2014, and reforms to the way in which foreign profits are taxed are two key factors behind the improvement.

This was posted in Bdaily's Members' News section by KPMG .