The Northern Ireland Corporate Tax Office (NIrCTO) David Stewart

Northern Ireland Corporate Tax Office | 2

Aims

To help promote NI:

• Inward investment • Local expansions • Research & Development Tax Relief

Northern Ireland Corporate Tax Office | 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 | 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 | 5

Possible commercial project time line – defining R&D for tax purposes

Northern Ireland Corporate Tax Office | 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 | 7

SME or Large

This extended post 1 August 2008 definition is for R&D Tax Relief purposes only.

Pre 1 August 2008 < 250 Employees

and

or Balance sheet totalling no

more than €43m

Annual turnover not exceeding €50m

Post 1 August 2008 < 500 Employees

and

or Balance sheet totalling no

more than €86m

Annual turnover not exceeding €100m

Northern Ireland Corporate Tax Office | 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 | 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 | 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 | 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 | 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 | 13

A SME practical example

Costs Allowable Qualifying Expenditure

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 £1,250

Disposable laboratory equipment consumed £200 £200 as consumable items £200

£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 £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 | 14

Manchester R&D Specialist Unit Tel 03000 511811

Help and Further Information R&D - HMRC website at:

http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm

Croydon R&D Specialist Unit Tel 03000 511811

The HMRC Corporate Intangibles and Research & Development (CIRD) Manual at: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD80000.htm

Northern Ireland Corporate Tax Office | 15

www.hmrc.gov.uk/nircto/invest-in-ni.pdf

Northern Ireland Corporate Tax Office | 16

• Context • What is it? • Overview of main conditions • What profits qualify? • Questions

The Patent Box

Northern Ireland Corporate Tax Office | 17

Patents and R&D

Northern Ireland Corporate Tax Office | 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 | 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 | 20

What profits qualify?

1. Sales of the patented item or items incorporating it

2. Royalties from licensing 4. Infringement income

5. Using a patented process to produce non

patented items 6. Using patented items to provide a service

3. Sales of qualifying patented rights And:

Notional Royalty

Northern Ireland Corporate Tax Office | 21

The Patent Box Profits

Corporation Tax Profits

23% tax 23% tax 23% tax

23% tax 23% tax

23% tax 10% tax

23% tax 23% tax

23% tax

Northern Ireland Corporate Tax Office | 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 | 23

The HMRC Corporate Intangibles and Research & Development (CIRD) Manual at: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD200000.htm

Help and Further Information HMRC website at:

http://www.hmrc.gov.uk/ct/forms-rates/claims/patent-box.htm

The Croydon R&D Specialist Unit

Tel 03000 511811

And finally…

The Northern Ireland Corporate Tax Office (NIrCTO) www.hmrc.gov.uk/nircto/index.htm

Tel 03000 599 000