Budget 2012: implications for IP, IT and communications
A summary of the implications of the 21 March 2012 Budget for IP, IT and communications. (Free access)
The Chancellor's Budget statement on 21 March 2012 includes a number of announcements of relevance to patent owners, producers of culturally British video-games, television animation programmes and high-end television productions, and companies engaged in research and development.Close speedread
George Osborne, the Chancellor of the Exchequer, delivered the 2012 Budget on 21 March 2012. The Budget includes proposals for corporation tax reliefs for the creative sector, including the video games and animation industries. The government confirmed previous announcements that it will introduce a lower rate of corporation tax (10%) for income from patents, an "above the line" research and development (R&D) tax credit from April 2013, and will amend the terms of the existing R&D tax relief and vaccine research relief. The government has also announced support for "superfast" broadband in six additional cities.
For an overview of the key business tax announcements made in the 2012 Budget, see Legal update, 2012 Budget: key business tax announcements (www.practicallaw.com/9-518-4532).
For PLC's coverage of the 2012 Budget, see PLC 2012 Budget. Further content will be added to this page over the coming days.
References to "Overview" are to the HMRC/HM Treasury Overview of Tax Legislation and Rates published on 21 March 2012. References to "TIIN" are to HMRC/HM Treasury Tax Information and Impact Notes published on 21 March 2012.
Corporation tax reliefs for the creative sector
The government has announced that it will introduce corporation tax reliefs for the production of culturally British video-games, television animation programmes and high-end television productions.
The previous government announced in March 2010 that it would consult on the introduction of a relief for the video-games industry. However, this was abandoned by the new coalition government as part of its first Budget in June 2010. For further detail, see Legal update, June 2010 Budget: key business tax announcements: Video games industry: tax relief dropped (www.practicallaw.com/5-502-5267).
Consultation on the design of the relief will take place over summer 2012. The legislation will be in the Finance Bill 2013 and will take effect from 1 April 2013, subject to EU state aid approval. The new regime may be similar to the film tax relief rules, see Practice note, Film tax relief (www.practicallaw.com/7-385-1193). The Association for UK Interactive Entertainment has welcomed the announcement.
(See paragraph 2.27, Overview.)
The Finance Bill 2012 will include legislation to implement the patent box, the regime allowing companies to elect to apply a 10% rate of corporation tax from 1 April 2013 to a proportion of profits attributable to patents and certain other qualifying intellectual property, whether paid separately as royalties or embedded in the sales price of products. In its first year of operation, the proportion will be 60%, rising by 10% each year to 100% from April 2017. For more information on the regime and the December 2011 draft legislation, see Legal update, Patent box: draft Finance Bill 2012 clauses and technical note (www.practicallaw.com/3-516-7168).
The government has clarified the legislation to achieve the policy aim that worldwide income from inventions covered by a qualifying UK Intellectual Property Office (www.practicallaw.com/6-106-3324) (IPO) or European Patent Office (www.practicallaw.com/4-201-0571) (EPO) patent is included (see Legal update, Government consults on patent box: UK and European Patent Office patents included (www.practicallaw.com/7-506-4432)).
The heads of expenditure included in the amounts that have to be marked up have been clarified (see Legal update, Patent box: draft Finance Bill 2012 clauses and technical note: Routine return figure (www.practicallaw.com/3-516-7168)).
The small claims safe harbour that previously applied to all companies (see Legal update, Patent box: draft Finance Bill 2012 clauses and technical note: Small claims election (www.practicallaw.com/3-516-7168)) has been limited to companies making profits with residual profits of no more than £3 million.
Further, as well as IPO and EPO patents, the government intends to extend the regime to other EU member states with similar examination and patentability criteria as the UK. The government will publish a list of qualifying jurisdictions in secondary legislation in 2012.
R&D: above the line tax credit
The government has confirmed that it intends to introduce an "above the line" R&D tax credit from April 2013 with a minimum rate of 9.1% before tax. Loss-making companies will be able to claim a payable credit. The legislation will be in the Finance Bill 2013 and is intended to encourage R&D activity by larger companies. The government will consult on the detail shortly but has said that it will ensure that R&D incentives for small and medium enterprises (SMEs) are not reduced as a result of this change.
The proposal was first suggested in June 2011 (see Legal update, R&D tax credits: consultation responses and further consultation (www.practicallaw.com/0-506-4510) and confirmed as part of the November 2011 Autumn Statement (see Legal update, 2011 Autumn Statement: business tax implications: R&D "above the line" tax credit (www.practicallaw.com/5-513-9508)).
(See paragraph 2.26, Overview.)
R&D tax relief and vaccine research relief
The government has confirmed that draft legislation to amend the R&D tax credit will form part of the Finance Bill 2012 (to be published on 29 March 2012). The draft legislation will be the same as, or very similar to, the draft legislation published in December 2011.
In relation to SMEs, the legislation will:
Increase the rate of additional deduction to 125%, giving a total deduction of 225%.
Reduce the rate of R&D tax credit to 11% and withdraw the vaccine research relief (to comply with state aid rules).
Remove the rule limiting the amount of R&D tax credit to the amount of a company's PAYE/national insurance contribution liability.
Clarify the definition of when a company is a "going concern" to confirm that companies in administration or liquidation are excluded from relief.
For SMEs and large companies, the legislation will:
Remove the minimum expenditure requirement.
Expand the definition of "externally provided worker".
(See paragraph 1.69, Overview.)
The 2012 budget builds on the government’s pre-existing plans, announced in its 2011 Autumn Statement, to improve broadband connections by investing in making a number of cities "super-connected", and which identified Edinburgh, Belfast, Cardiff and London to receive some of this money (see Legal update, 2011 Autumn Statement: implications for IP, IT and communications (www.practicallaw.com/4-514-3172)). It has now identified the other cities that will benefit (Birmingham, Bradford, Bristol, Leeds, Manchester and Newcastle), and announced that a further £50 million will be made available for a second wave of ten smaller super-connected cities. The government intends that by 2015 this will deliver ultrafast broadband coverage to 1.7 million households and 200,000 businesses in high growth areas as well as high-speed wireless broadband for three million residents. The government defines ultrafast broadband as having a headline download speed of at least 100 megabits per second, with no upper limit.
(See paragraph 2.30, Budget report, 2012.)