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High tech tax incentives – are you claiming all you can?

October 4, 2012

There are lots of financial incentives out there for businesses in the high-tech sector at the moment, but many businesses are not claiming all they are entitled to because they simply aren’t aware that they can.

Richard Hopes of Surrey and London accountancy firm, Alliotts, is a specialist accountant for the high-tech industry and gives a round-up of some current tax incentives that are of real benefit to high-tech businesses:

Tax incentives – Summary

  • There have been recent changes in tax relief for Research and Development (R & D) which are particularly beneficial for SMEs that are constantly innovating and developing new products. For SMEs, the R & D deduction for R & D spend increased to 225% of expenditure from April 2012.

    For large companies, this remains at 130%. This is a major saving and well worth considering if you are constantly innovating your product range. What many businesses do not understand is that R & D claims may be relevant to many companies, not just those involved in highly technical developments.

  • In addition, SMEs can claim a proportion of subcontracted costs as well as their own staff and relevant materials.
  • SMEs – but not large companies – who are making losses are able to instead claim a tax refund. This used to be limited to the amount of PAYE paid but that is no longer the case.
  • The minimum expenditure limit of £10,000 has now been removed.
  • Profits from all patents may become eligible for the new “patent box” rates of corporation tax from 2013. These rates will ultimately be as low as 10% and relate to income derived directly from patents, i.e. royalties.   This change will be useful for a company which licenses out its patented products to manufacturers in exchange for royalties. Eventually the tax rate will be 10% although it will take five years to get there.

“Apart from the tax issues, financially “intellectual property” can be a significant source of future income for a company. Many businesses give away the benefit of the research that they have carried out by not protecting themselves sufficiently, for example when entering into joint venture arrangements.

The potential sources of income are swallowed up elsewhere by not giving adequate consideration to the future ownership of the benefits of the research – but this can be dealt with if thought about properly before entering negotiations.

“For anyone in the technology sector, there is plenty to think about here. SME business owners need to be aware that the Government is providing plenty of assistance to help them drive their businesses forward. A common sense approach to preserving their technology assets should provide the basis for a sound financial future.”