Supporting Manufacturing in the South West The accountant’s view Ian Lloyd 17 th July 2013

Overview MHA manufacturing Survey – Key Areas Capital expenditure Research & Development enhanced allowances Patent Box – the new regime

MHA National manufacturing Survey Key areas include Growth Funding Recruitment and skills Currency and exchange rate management The tax regime: –Capital expenditure management –Research & Development enhanced allowances –Patent Box

Capital expenditure management Make sure you take advantage of all tax reliefs available for capital spend Annual Investment Allowance is available to all businesses Expenditure falling within the AIA is fully deductible from taxable profits Currently £250,000 per annum for years ending 31 December 2013 and 2014 Ensure capital spend is in the correct period for tax purposes

Research & development enhanced allowances Why are these important? Additional tax deductions available for qualifying spend: –125% uplift of spend for small and medium sized companies –30% uplift for large companies For example £100 of qualifying spend results in a tax deduction of £225 for small and medium sized companies and of £130 for large companies

Research & Development enhanced allowances How do you qualify? The R&D Project must “seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” Technological or scientific uncertainties exist where the knowledge to resolve them is not readily available or deducible by a competent professional Must show a process of investigation and analysis that highlights the method adopted to overcome the uncertainties including successes and failures

Research & Development enhanced allowances May be “hurdles” to overcome to fall within regime, for example HMRC queries Once within regime, benefits are significant, for example £100,000 spend receives deduction of £225,000 for tax – this will save £25,000 in tax at 20% corporation tax rate R&D enhanced allowances may be the difference between a project being viable or remaining on the drawing board HMRC estimate there are £1bn of unclaimed R&D enhanced allowances annually………..so look closely at what you do

Patent Box 10% effective rate of tax for exploitation of patents Includes: –Sales of patented products –Sales of products that include a patented component –Licence fees for the exploitation of a patent For example if a car has a patented windscreen wiper blade, arguably all of the profit from the sale of the car will be taxed at the reduced 10% rate – it really can be that generous! 8

Patent Box Applies to all UK, EU and EEA patents Regime operates from 1 April 2013 Benefit phased in so receive 60% of benefit from 1 April 2013, rising to 100% by 1 April 2017 If undertaken R&D on a product is it worth filing a patent? Patent Box regime is a huge incentive to register and exploit patents within the UK

Conclusions Plan capital spend to effectively utilise all available reliefs R&D and Patent Box can alter the viability of projects and radically change a company’s tax profile Examine carefully the projects you undertake, can all or some of the project qualify for R&D If you have a proprietary product or process or are claiming R&D consider the benefits of trying to patent that process or product If HMRC are expecting £1bn per annum of additional R&D claims, lets not disappoint them!

Thank You