One month on, our initial view that the Chancellor’s pre-Budget report contained relatively few changes not already pre-announced, has not changed – other than the further ½ percent increase in national insurance contributions. However, the technology sector will welcome a low tax regime for patent owners and a relaxation to the R&D regime although all could change with a new government.
In order to protect against companies taking intellectual property (IP) offshore to take advantage of lower tax rates, the Chancellor has announced a new 10% rate of corporation tax to apply to income from patents, from April 2013. The so-called ‘Patent Box’ regime is designed to encourage investment in high-technology and innovative industries to remain in the UK. The final details have yet to be established as the Government will consult with businesses with the aim of introducing the legislation in the Finance Bill 2011.
The new rules will only apply to patents granted after the legislation is passed. It is currently unclear whether this means once the Finance Bill 2011 is passed or to patents granted post April 2013.
R&D tax relief
The Chancellor has removed the requirement that small or medium sized entities (SMEs) own any IP created as a result of R&D in order to benefit from the enhanced tax deduction and tax credit. The change is effective for expenditure claimed by SMEs on R&D in accounting periods ending on or after 9 December 2009.
This will help particularly all those spin out companies who hold their IP licence from universities and other academic institutions. This relaxation of the rules will also enable SMEs to obtain relief where they have assigned IP to other group companies or sub-contracted the R&D work to a third party such that any resulting IP becomes the property of the third party.
The changes to the R&D rules are certainly welcome, however, the Patent Box regime will not kick in for some time and with an election later this year there is a possibility that it will never see the light of day. If you would like further information on either scheme contact Jon Sutcliffe, Head of Technology sector, firstname.lastname@example.org.