How lean is your company tax bill

The current level of tax incentives from HMRC is unprecedented and with the Patent Box launching April 1, there was never a better time to review your company tax affairs than now says Barrie Dowsett, CEO, Myriad Associates

After 20 years working as a FD for companies ranging from SMEs to blue chips I launched Myriad Associates to provide fully out-sourced services for business tax. I can honestly say that the opportunity for investing in R&D has never been better, especially for start-up businesses. With a little bit of careful tax planning it is possible to mix and match the below HMRC tax incentives in order to deliver an outstanding funding package – here’s why:

The Patent Box

New, fresh and full of promise.

  • The PB makes its debut on the April 1 and it promises to be as big as the R&D Tax Relief Scheme
  • The PB will be phased in over a five year period and ultimately will provide a reduced corporation tax of 10% on qualifying IP profits
  • Revenues from worldwide royalties, license fees and sales of products incorporating patented technology will be allowable
  • The PB regime benefits companies that have qualifying Patent rights that derive a profitable income stream

RDAs (Research and Development Allowances)

The undiscovered opportunity

  • RDAs represent an excellent opportunity for companies that have built/ refurbished development facilities and spent money on plant, machinery, fixtures or fittings associated with R&D activities
  • RDAs provide for an uncapped 100% capital allowance deduction. This is of great benefit to companies that have invested in fixed assets associated with R&D activities especially when you consider that Industrial Building Allowances have been phased out and Plant & Machinery Allowances are deducted at only 18% on a reducing balancing method
  • The actual monetary value of claiming RDAs depends on your company’s cost of capital. However, based on a cost of capital of 5% over a 25 year period, RDAs represent a net present value saving of 28% over P&M allowances

R&D Tax Relief Scheme

A mature tax incentive that is getting better with age.

A mature tax incentive that is getting better with age.

The R&D Tax Relief scheme was born in the year 2000 and now provides over £1bn of support per year to over 10,000 companies

The R&D Tax Relief scheme rewards both SMEs and Large Companies that undertake qualifying development activities. Loss making SMEs can also benefit by receiving a tax credit payable in return for surrendering tax losses

Eligible costs include staff wages, agency workers, sub-contractors, materials, consumables and software expenditure that is spent on qualifying development activities HMRC have recently boosted the tax relief levels (from 1st April 2012) and it is now possible for SMEs to recover back corporation tax at a rate of 25p to 30p per £1 of eligible costs

SEIS (Seed Enterprise Investment Scheme)

Aimed at small SME’s but delivering a big punch.

  • SEIS is a great opportunity for a start up company that has been trading for less than 2 years, has total assets lower than £200k and up to 25 employees
  • Each shareholder that has less than 30% shareholding can obtain a 50% income tax relief on their investment. Therefore a 25% shareholder investing £37,500 would obtain income tax relief of £18,750
  • A company can raise up to £150,000 in total under the SEIS incentive
  • The SEIS works incredibly well with the R&D Tax Relief scheme and when combined together can provide up to 75% of a high-tech start up funding needs
  • The SEIS big brother EIS (Enterprise Investment Scheme) caters for larger funding requirements although the tax incentive is not as generous