Simon Littlejohns, Partner and Head of Tax at Chartered Accountants Friend Partnership Limited, with offices in Birmingham and London, offers a summary of technology tax reliefs.
If you run or own a business with innovation as a key element of the business activity there are a number of valuable tax breaks which are available. In some cases cash payments can be secured from HMRC.
The following is a simple summary of some of the things you could and should be considering.
- Review capital expenditure plans for new qualifying plant and machinery so as to make best use of the Annual Investment Allowance which is currently £500,000 per annum (until 31 December 2015).
- Consider energy saving equipment where possible to give 100% relief which augments the AIA.
- Consider the tax implications of the various ways in which plant and machinery can be acquired i.e. outright purchase, hire purchase etc.
- Think about new and used buildings and ‘integral features’. Watch the new rules with regard to second hand buildings. It may be possible to claim allowances in respect of past expenditure.
Research and Development
- Does the business carry out R&D as defined?
- If so the tax deduction is increased by 125% of the qualifying cost for small and medium sized companies.
- The increase is 30% for large companies.
- Qualifying costs: salaries, consumables, sub-contractor costs.
- Companies need to watch:
– Grant funding;
– Sub-contractors; and
– Data capture.
- Cash payments are available from HMRC for the surrender of losses by loss making companies. The rate of payment is currently 14% of the losses surrendered.
- Companies are able to claim a tax deduction for the amortisation of acquired intangible assets including goodwill.
- No tax deduction is available for self-generated goodwill.
- Care is needed with regard to connected party transactions.
- A tax rate of 10% will be available by April 2017 in respect of the profits generated by companies exploiting patents they have created.
- Detailed rules dictate how to calculate the patent profits to be taxed at this reduced rate.
- Transactional rules are in place to give a phased reduction in the existing tax rate in the period to April 2017.
Creative Sector Reliefs
- Tax breaks are available for companies involved in the creation of high end TV, animation and video games.
- The output has to meet certain criteria and other tests.
- Enhanced tax deductions are available for qualifying expenditure and there is a repayable tax credit as with the R&D rules.
More detailed guidance is given in our various ‘Briefing Notes’ on the above topics.