Member Article

Large number of small businesses are unaware of tax breaks that encourage investment in growth

Accountancy Firm UHY Hacker Young says many small businesses are not taking advantage of tax breaks, some of which had been introduced by the government over a decade ago. Many are unaware of the government’s new research and development tax credits, and many businesess are actually avoiding the the Patent Box measure which was introduced ten years ago, under which firms pay tax at lower rates on profits earned from the intellectual property they develop.

Clive Gawthorpe, Tax Partner in the Manchester office of accountants UHY Hacker Young explains more: “What we are seeing is that companies are actually not looking to maximise the Patent Box relief through fear of their development becoming public knowledge and being replicated as the information is in the public domain. A number of companies that we have spoken to are declining the Patent Box option as they don’t want to patent their product for fear that it will make public knowledge of how to replicate their product and copied it will be too expensive to defend the patent especially if the competitors are overseas. The reduced rate of tax on patent income – involves (usually) complex calculation and although companies could potentially benefit in a reduction from 20% down to 10% that means nothing if they ultimately lose business due to a competitor copying their product.

What we are seeing in respect of Research and Development is that most businesses don’t even realise that they are eligible. Every time that a company updates or improves a product or system that they use they could potentially be able to benefit from R&D relief. The project may Extend overall knowledge or capability (an advancement) - Create a process, material, device, product or service which incorporates or represents an advancement - Make an appreciable improvement to an existing process, material, device, project or service through scientific or technological changes. All of these are Research and Development. This relief is available to Small – Medium size enterprises (SMEs) who must have employees less than 500, and meets one of the two following tests: Turnover less than €100m - Balance sheet total less than €86m - The SME relief rates will be 100% of usual revenue deduction, plus 125% SME R&D tax relief , making the relief 225% in total. So it is well worth going for.“

This was posted in Bdaily's Members' News section by Ian Hunter .