By Nigel Holmes, Head of R&D Technical Operations at Catax.
As the tax year end of 5th April nears, the financial press will be looking at the usual ways for individuals to minimise their tax using well-established tax planning techniques including:
But what can Catax clients do in respect of Research & Development (R&D) tax relief and the Patent Box?
As these reliefs are only available to companies, the tax year end is largely irrelevant. The company’s year-end is far more important. So if a company has a March year-end, which is very common, then such companies should consider ensuring employer pension contributions are maximised for employees undertaking R&D. This allows the relevant proportion of the contribution that relates to R&D to attract 230% Corporation Tax Relief. Pension contributions must be paid, not merely accrued, to benefit from tax relief.
For companies with a year-end of April 2019 onwards, these companies should be aware that the Corporation Tax rate is to reduce to 17% from 1 April 2020, and companies with year ends which straddle this date will have a pro-rata rate. With no announced changes so far to R&D tax relief rates the value of the relief will lessen. Therefore, companies should, where possible, bring forward R&D spend such that it falls into a period which ends before 1 April 2020.
Likewise, with the Patent Box, the relief will be more valuable before 1 April 2020 and, therefore, income that can be brought forward into a period which ends prior to 1 April 2020 will maximise the relief.
Of course, companies should seek full advice when undertaking tax planning rather than just considering R&D tax relief and the Patent Box in isolation.