The Northern Ireland Corporate Tax Office (NIrCTO), David Stewart
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The document provides an overview of Research and Development (R&D) Tax Relief and the Patent Box regime available in Northern Ireland. It outlines the aims of the Northern Ireland Corporate Tax Office to promote inward investment, local expansions, and R&D. It then summarizes the key details of the R&D Tax Relief scheme, including the types of qualifying expenditures, grants and subsidies, and how relief is claimed. It also summarizes the main conditions and types of profits that qualify for the Patent Box, which allows profits from patents to be taxed at 10%.
The Northern Ireland Corporate Tax Office (NIrCTO), David Stewart
- 1. The Northern Ireland Corporate Tax Office (NIrCTO) David Stewart
- 2. Aims To help promote NI: • Inward investment • Local expansions • Research & Development Tax Relief Northern Ireland Corporate Tax Office | 2
- 3. R&D Tax Relief - Brief overview • Relief for qualifying revenue expenditure on R&D. • Where a project seeks to achieve an advance in science or technology • Which is not readily available or deducible by a competent professional working in the field. • Must be an advance in overall knowledge or capability in the field – not just the company’s own state of knowledge or capability. • (100% RDA’s are available for capital expenditure). Northern Ireland Corporate Tax Office | 3
- 4. Further considerations • Focus on the advance being achieved and not the industry or product aspiration, specification or design. • Involve the R&D staff in the process. Northern Ireland Corporate Tax Office | 4
- 5. Possible commercial project time line – defining R&D for tax purposes Northern Ireland Corporate Tax Office | 5
- 6. R&D tax Relief - How the relief works The level of relief available depends upon which R&D relief scheme a company falls within. • The small or medium company (SME) scheme - enhanced deduction of 225% of the company’s qualifying expenditure. (Previously 200% up to 31 March 2012). 11% repayable credit for R&D losses • The large company scheme - enhanced deduction of 130% of the company’s qualifying expenditure. No repayable credit for R&D losses. • New 10% research & development expenditure credit (Above The Line credit) - introduced from 1 April 2013 for large companies. Northern Ireland Corporate Tax Office | 6
- 7. SME or Large Pre 1 August 2008 Post 1 August 2008 < 250 Employees < 500 Employees and and Annual turnover not exceeding €50m Annual turnover not exceeding €100m or or Balance sheet totalling no more than €43m Balance sheet totalling no more than €86m This extended post 1 August 2008 definition is for R&D Tax Relief purposes only. Northern Ireland Corporate Tax Office | 7
- 8. Qualifying R&D expenditure Is expenditure on: • Staffing costs (CIRD83000/83200) (includes salary costs, bonuses, employers NIC, pension contributions, but no benefits in kind). • Consumable items (CIRD82300/82400) (Includes water fuel and power) • Software (CIRD82500) (revenue expenditure on software directly employed in R&D activity) • Externally provided workers (CIRD84000/84100) (If unconnected, 65% of the expenditure qualifies) • Subcontracted R&D (CIRD84200) (If unconnected, 65% of the expenditure qualifies) • Contributions to independent research (Large Scheme only) (CIRD82200) Northern Ireland Corporate Tax Office | 8
- 9. Grants & Subsidies (Main Principles) SME Scheme • Grants & subsidies are deducted and the R&D claim is made on net allowable expenditure. (If grants are Notified, no claim is possible under the SME scheme, but you may still make a claim under the Large scheme or ATL credit). Large Company Scheme • Grants & subsidies are not deducted and the R&D claim is made on gross allowable expenditure. Note - The grant receipt is taxed under the normal taxing provisions. - Grant receipts are not conclusive evidence of R&D for tax purposes and do not necessarily correlate to the qualifying R&D expenditure. Northern Ireland Corporate Tax Office | 9
- 10. Grants – practical examples A Ltd a SME spends £100k on qualifying R&D with a £40k subsidy which is a notified state aid (to include ‘Grant for R&D’ etc): • R&D Costs £100,000 • Less funding £ 40,000 • Net project cost £ 60,000 No Claim Under SME scheme BUT can claim under Large scheme R&D tax relief £100,000 @ 30% = £30,000 Tax saved enhanced exp £ 30,000 @ 23% = £ 6,900 Plus accounts deduction £100,000 @ 23% = £23,000 Total tax saved £29,900 Northern Ireland Corporate Tax Office | 10
- 11. Grants – practical examples A Ltd a SME spends £100k on qualifying R&D with a £40k subsidy which is not a notified state aid (to include Horizon 20:20): • R&D Costs £100,000 • Less funding £ 40,000 • Net project cost £ 60,000 R&D SME tax relief £ 60,000 @ 125% = £75,000 Plus R&D Large tax relief £ 40,000 @ 30% = £12,000 Tax saved enhanced exp £ 87,000 @ 23% = £20,010 Plus accounts deduction £100,000 @ 23% = £23,000 Total tax saved £43,010 Northern Ireland Corporate Tax Office | 11
- 12. How R&D Relief is claimed • In full company tax return at end of accounting period. • Outline of the project • Outline the scientific or technological uncertainties to be resolved. • Detail the allowable costs on direct resolution. • Backdated claims possible (within the anniversary of the filing date – generally 2 years after the end of the accounting period). Northern Ireland Corporate Tax Office | 12
- 13. A SME practical example Costs Allowable R&D staff (x3) with total costs £150,000 and 80% of time directly on R&D £150,000 x 80% allowable as staff costs £120,000 R&D Manager’s costs £100,000 with 20% of time directly managing the R&D activity £100,000 x 20% allowable as staff costs £20,000 Heat & light £5000 with 25% consumed in R&D project £5,000 x 25% as consumable items Disposable laboratory equipment consumed £200 £200 as consumable items £80,000 payments to an unconnected subcontractor for specific R&D work 65% of payments allowable as subcontracted R&D £80,000 x 65% = £52,000 £70,000 payments to unconnected staff provider for staff directly engaged on R&D 65% allowable as an externally provided worker £70,000 x 65% = £45,500 Total qualifying expenditure Qualifying Expenditure £1,250 £200 £238,950 SME Scheme enhanced expenditure £238,950 x 225% £537,638 claimed at Box 101 on CT 600 SME Scheme enhanced R&D Relief @ 225% £238,950 x 125% Additional deduction due £298,687.50 Northern Ireland Corporate Tax Office | 13
- 14. Help and Further Information R&D - HMRC website at: http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm The HMRC Corporate Intangibles and Research & Development (CIRD) Manual at: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD80000.htm Croydon R&D Specialist Unit Tel 03000 511811 Manchester R&D Specialist Unit Tel 03000 511811 Northern Ireland Corporate Tax Office | 14
- 15. www.hmrc.gov.uk/nircto/invest-in-ni.pdf Northern Ireland Corporate Tax Office | 15
- 16. The Patent Box • • • • • Context What is it? Overview of main conditions What profits qualify? Questions Northern Ireland Corporate Tax Office | 16
- 17. Patents and R&D Northern Ireland Corporate Tax Office | 17
- 18. What is it? Allows limited companies to tax qualifying profits earned from its qualifying patents or patented inventions at 10%) Phased in from 1 April 2013 with full benefit by 2017 An optional regime so companies must elect in – No special form. Northern Ireland Corporate Tax Office | 18
- 19. Main conditions Company must hold a qualifying UK or EPO patent or an exclusive licence to develop such rights. Limited other EEA jurisdictions also apply. Regime also applies to rights similar to patents relating to human and veterinary medicines, plant breeding and plant varieties. Development Condition – the company must have created or significantly developed the patented invention. Active Ownership Condition - for group’s, the company must have either developed the IP itself or be actively managing it. Northern Ireland Corporate Tax Office | 19
- 20. What profits qualify? 1. Sales of the patented item or items incorporating it 2. Royalties from licensing 3. 4. Sales of qualifying patented rights Infringement income And: 5. Using a patented process to produce non patented items 6. Notional Royalty Using patented items to provide a service Northern Ireland Corporate Tax Office | 20
- 21. The Patent Box Profits Corporation Tax Profits 10% tax 23% tax 23% tax 23% tax 23% tax 23% tax 23% tax 23% tax 23% tax Northern Ireland Corporate Tax Office | 21
- 22. Marketing Asset Return - Brands This adjustment aims to exclude the sometimes very substantial profits generated by established brands and to arrive at profit attributable to patents. Simplifications: If brand profit is less than 10% of the profit remaining after deducting the routine return, then there is no need to make an adjustment. Special treatment for “small claims”. Northern Ireland Corporate Tax Office | 22
- 23. Help and Further Information HMRC website at: http://www.hmrc.gov.uk/ct/forms-rates/claims/patent-box.htm The HMRC Corporate Intangibles and Research & Development (CIRD) Manual at: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD200000.htm The Croydon R&D Specialist Unit Tel 03000 511811 And finally… Northern Ireland Corporate Tax Office | 23
- 24. The Northern Ireland Corporate Tax Office (NIrCTO) www.hmrc.gov.uk/nircto/index.htm Tel 03000 599 000