Corporate tax

Bonus or commission? Can you claim R&D tax credits? Could you benefit from claiming capital allowances? What is patent box? 

COULD YOU BENEFIT FROM CLAIMING CAPITAL ALLOWANCES?

Ahead of this year end, be sure to review your capital expenditure to maximise claims for capital allowances.

For a temporary two-year period from 1 January 2013, the majority of businesses are able to claim a 100% Annual Investment Allowance on the first £250,000 of expenditure on most types of plant and machinery (except cars).

Typically, a purchase made just before the end of the current accounting year will mean the capital allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief (or even an earlier charge to tax).

If you would like to discuss Capital Allowances further please contact us on 020 7330 0000.

SHOULD I PAY A BONUS OR COMMISSION?

Let’s look at the difference in how bonuses and commission are structured.

A bonus is usually paid when a particular target is achieved. A bonus can be linked to a single objective, or multiple business objectives – around revenue, profits or productivity, for example. In larger organisations, a bonus scheme can relate to local targets and/or be linked to overall company performance. A bonus scheme can also be used for retaining staff – you agree to pay a bonus after a certain period of time if targets are met, for example.

Commission involves paying a percentage of what the contract won is worth. As a result, there is a clear link between the amount of business the employee brings in and the amount of financial reward. However, if lots of employees are involved in the sales process it may be difficult to correctly allocate the commission. You must be clear about which areas of the business are involved.

If you would like further information on Commission v Bonus payments or you would like to discuss this further please contact us on 020 7330 0000 or email abglondon@abggroup.co.uk.

IS EVERY COMPANY ELIGIBLE FOR RESEARCH & DEVELOPMENT TAX RELIEF?

No.  Only UK companies.

In order to qualify as a small or medium sized company, there are the following requirements:-

Fewer than 500 employees, and either of the following:

Turnover not exceeding €100million

Balance sheet not exceeding €86million

ON WHAT EXPENDITURE CAN I CLAIM RESEARCH & DEVELOPMENT TAX?

In order to claim Research & Development Tax on expenditure your company must have a project which seeks to achieve an advance in overall knowledge or capability in the field of science or technology through the resolution of scientific or technological uncertainty.

Furthermore, the project must satisfy the following conditions:-

It must be related to your company or organisation’s trade – either an existing one or one that you intend to start up based on the results of the Research & Development

Your company must own any intellectual property that might arise from the projects

If you would llike to discuss your eligibility to claim Research & Development Tax please contact one of our Research & Development experts on 020 7330 0000.

CAN I CLAIM RESEARCH & DEVELOPMENT (R&D) TAX CREDITS?

Despite being on the statute books for over a decade, there are still companies not claiming the hugely valuable research and development (R&D) tax relief.

Research & Development is not restricted to people in white coats holding test tubes, or IT pioneers, but covers companies in virtually every industry which are undertaking some form of innovation; this will include innovation in products and services, as well as support functions.

Industries in which Research & Development claims have been made include digital media, engineering, aerospace, furniture manufacture, construction, advertising, telecoms, financial services, as well as the more obvious manufacturing, energy, and purer sciences industries.

Software, internet and communications are good examples of Research & Development in supporting functions as well as in their own right.

HOW MUCH IS R&D TAX RELIEF WORTH?

Research & Development tax relief is obtainable at the rate of £2.25 in the £.

This means that for every £1 spent on Research & Development, a UK company will get a deduction in their corporation tax computation of £2.25.

Therefore, if £100,000 is spent on Research & Development in any one accounting year, the deduction for corporation tax purposes will be £225,000.

NEW RULES FOR THE TREATMENT OF SALARIED LLP MEMBERS

New rules for the treatment of salaried LLP members will take place from 6 April 2014.

The new legislation does not apply to general partnerships or to limited liability partnerships formed under the law of jurisdictions outside the UK, even if the firm is operating in the UK.

It is only directed at salaried members of LLPs formed under the Limited Liability Partnership Act 2000 (LLPA)

 

WHAT IS PATENT BOX?

The Patent Box is a corporation tax relief for relevant intellectual property profits of a company’s trade. Patent Box commenced on 1 April 2013.  Patent Box relief is not automatic and therefore a company must elect for Patent Box to apply if it considers that it is eligible to make a claim.

The relief will ultimately tax relevant intellectual property profits of a company’s trade at a flat rate of 10% but the relief is being phased in over a 5 year period from 1 April 2013 and so for the first year only 60% of the relevant profits will be taxed at 10%, 70% in year 2 and so on until the full 100% of relevant profits is taxed at 10% in year 5.

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