The Motorsport Industry Association (MIA) has this week welcomed new tax incentives from which many of Motorsport Valleys high performance engineering SMEs will benefit. The UK Governments new Patent Box tax scheme which makes the UK a low tax haven for innovative companies means that from this month, profits generated by patented products will qualify for a lower rate of Corporation Tax falling, in stages, to 10 per cent by 2017.
In the past, some SMEs hadnt considered patents worthwhile even after investing heavily in R&D. It is thought the latest changes to tax rules will encourage more companies to apply, particularly as all products made from a single patented process, can be included within the Patent Box tax scheme.
The UK Treasury expects this scheme to cost nearly 1bn a year by 2017. While the major movers behind this scheme were large multinationals, particularly from the pharmaceutical sector, seeking an incentive to build their high-tech research centres, many R&D based UK SMEs will benefit. In addition to the new Patent Box scheme, the Government has announced enhanced tax credits for R&D spending and a cut in Corporation Tax to 20 per cent from 2015.
Chris Aylett, CEO of the MIA, said: We will see Motorsport Valley attract more business from international R&D based motorsport and high performance engineering companies as a result of these excellent tax incentives. With a Corporation Tax rate of just 20 per cent, and the Patent Box scheme cutting that to 10 per cent, plus new tax credits for R&D spending, and a far better regime for foreign profits in general, the UKs Motorsport Valley can look forward to further investment from motorsport operations around the world. Although foreign companies can continue operations in their national centre, basing some or all of their R&D activity within the fast-growing, world-class Motorsport Valley business community, and gaining these tax benefits, makes good sense.
The lower rate of tax applies to existing, as well as new patents, and only a small part of any product needs to be patented for this generous tax break to apply to the world-wide profits that it earns. Just one patent covering a small technical feature may be enough for profits from the sale of the entire product to be taxed at the reduced rates.
To qualify for the lower rate of tax all patents must be owned and actively managed by a UK company, however the concept of management is loosely defined and companies may do only the minimum required. The tax break is open to UK subsidiaries where the technology has been developed by an overseas parent company. The Patent Box scheme encourages UK companies to commercialise patented inventions.
