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Innovating companies can gear up for clever tax benefits

Innovating companies can now maximise the advantageous tax regime that’s been brought in for patented products.

The Patent Box tax regime came into effect in April and it gives companies a reduced 10% corporation tax rate on the proportion of profits derived from the exploitation of patents.

It applies to patents granted by the UK Intellectual Property Office, the European Patent Office or certain other specified EEA countries.

First announced in 2010, the reduced corporation tax rate is designed to encourage businesses to develop and actively exploit patents, rather than sitting on intellectual property (IP) as often happens. The new regime will be phased in over the next four years, with tax savings gradually rising from 60% of potential benefits in year one to the full 100% from April 2017.

The Government has introduced the Patent Box to encourage innovative businesses to invest in the UK and say it should improve the competitiveness of the UK tax system for high-tech companies.

Companies can only benefit from the Patent Box if they are liable to Corporation Tax and make a profit from exploiting patented inventions; they must also own or hold an exclusive license for the patents and must have undertaken qualifying development on them.

But there are opportunities for companies beyond the original patent, as the tax relief is going to be available for profits on whole products, even where the patented item is only a small part of that whole. It is also going to extend to profits earned worldwide, even if the product is patented in just the UK.

As well as providing relief on IP income, the tax relief will also be allowed on license fees received on a patented product or process.

The other bonus for companies is that the Patent Box relief can be backdated to profits earned up to six years prior to the granting of the patent. This should help fund the cost of patenting where there is a short lifespan on a product.

Because it does not apply to non-exclusive licenses, exclusive licenses falling within the Patent Box will be far more valuable to potential licensees. The tax relief can also be claimed for related non-patent IP, such as trademarks and registered designs, so they do not need not be exclusively licensed.

Explained corporate law expert Brendan O’Brien: “There is scope for companies with activities that would not currently fall within the Patent Box to review their strategy and if necessary to modify their activities so that they qualify - although, as with all things, everyone needs to weigh up the admin burden of opting in to such a scheme.”

He added: “It’s a complex area, but any company involved in innovation and patenting should be reviewing what they are currently doing and looking how they might benefit from the new regime.”


Innovating companies can gear up for clever tax benefits

Innovation companies can now maximise the advantageous tax regime that’s been brought in for patented products.
The Patent Box tax regime came into effect in April and it gives companies a reduced 10% corporation tax rate on the proportion of profits derived from the exploitation of patents.
It applies to patents granted by the UK Intellectual Property Office, the European Patent Office or certain other specified EEA countries.
First announced in 2010, the reduced corporation tax rate is designed to encourage businesses to develop and actively exploit patents, rather than sitting on intellectual property (IP) as often happens. The new regime will be phased in over the next four years, with tax savings gradually rising from 60% of potential benefits in year one to the full 100% from April 2017.
The Government has introduced the Patent Box to encourage innovative businesses to invest in the UK and say it should improve the competitiveness of the UK tax system for high-tech companies.
Companies can only benefit from the Patent Box if they are liable to Corporation Tax and make a profit from exploiting patented inventions; they must also own or hold an exclusive license for the patents and must have undertaken qualifying development on them.
But there are opportunities for companies beyond the original patent, as the tax relief is going to be available for profits on whole products, even where the patented item is only a small part of that whole. It is also going to extend to profits earned worldwide, even if the product is patented in just the UK.
As well as providing relief on IP income, the tax relief will also be allowed on license fees received on a patented product or process.
The other bonus for companies is that the Patent Box relief can be backdated to profits earned up to six years prior to the granting of the patent. This should help fund the cost of patenting where there is a short lifespan on a product.
Because it does not apply to non-exclusive licenses, exclusive licenses falling within the Patent Box will be far more valuable to potential licensees. The tax relief can also be claimed for related non-patent IP, such as trademarks and registered designs, so they do not need not be exclusively licensed.
Explained corporate law expert Brendan O’Brien: “There is scope for companies with activities that would not currently fall within the Patent Box to review their strategy and if necessary to modify their activities so that they qualify - although, as with all things, everyone needs to weigh up the admin burden of opting in to such a scheme.”
He added: “It’s a complex area, but any company involved in innovation and patenting should be reviewing what they are currently doing and looking how they might benefit from the new regime.”
ENDS
This information is not intended as legal advice


Employment Law Newsletter May 2013

May 2013
Dear Employer
Finally, some progress has been made on the proposed new system of employees being given shares in return for giving up some of their employment rights. The scheme has not yet been finalised but, as seen in our “What’s in the Pipeline” section, some further adjustments have been made. For some employers it could be the answer to their prayers; for others it may not bode so well. If you require any advice on this or any other employment issue, then please do not hesitate to contact us: details are at the end of this letter.
If you have any comments or suggestions on this newsletter, please email newsletter@breezeandwyles.co.uk
Kind regards
The Employment Law Team
Some Recent Cases in Employment Law
NO TUPE CONSULTATION NEEDED WHEN PART OF BUSINESS CLOSED
A recent case has held that where an insolvent company transferred part of its business and closed the other part, the employees of the closed part were not “affected employees” of the transfer and so were not entitled to be informed and consulted under TUPE consultation. In such a situation, the employees are “affected” by the closure of their part of the business, not by the transfer. Even if the closure is indirectly the result of the transfer, that does not mean that employees are “affected” by the transfer within the meaning of the TUPE Regulations. [I Lab Facilities Ltd v Metcalfe and Others]
DISCRIMINATION INFERRED FROM HOMOPHOBIC COMMENTS
In a Spanish case, which has ramifications for employers in other European countries, the European Court of Justice (ECJ) has held that homophobic comments made in public by persons strongly associated with an employer, which suggested the existence of a homophobic recruitment policy, are capable of establishing a “prima facie case of discrimination” against the employer – even if the person who made the comments is not legally capable of binding the employer in recruitment matters. The fact that the employer may not have clearly distanced itself from the comments is a factor which a national court may take into account in deciding whether or not the claimant has established that there is a case – and also in deciding whether or not the employer has rebutted that case.
In brief summary, B owned shares in a Romanian football club. It was public knowledge that he played an important behind-the-scenes role but was not capable of binding the club in employment-related matters, such as recruiting staff. B gave an interview to a journalist concerning the possible transfer of a professional footballer, X, to the club. The journalist suggested X was homosexual; in response, B made a number of homophobic comments, including that he would prefer to hire a player for the junior team than a homosexual. In the event, X was not transferred to the club. AA, a non-governmental organisation which promotes and protects gay and transsexual rights, lodged a complaint against B and the football club before the National Council for Combatting Discrimination, claiming that they had directly discriminated on the grounds of sexual orientation. It claimed that B had taken on board the journalist’s suppositions that X was homosexual and prevented the footballer being taken on by the club. The Council rejected the claim against the club on the basis that the club could not be responsible for these comments because B did not have the legal capacity to bind the club or represent it in recruitment matters. The organisation (AA) appealed to the Romanian Court of Appeal which referred it to the European Court of Justice.
To establish a discrimination claim (of any kind), a claimant has to establish that there are facts from which discrimination can be inferred – i.e. a “prima facie” case. Here, the ECJ held that these comments were capable of establishing a prima facie case if the comments came from a person who plays an important role in the management of that employer, even if that person is not legally capable of binding the employer in any employment related matters. Also, the fact that the employer has not clearly distanced itself from the comments is a factor which a national court may take into account in deciding whether or not the claimant has established a prima facie case.
The ECJ also held that in order to rebut a prima facie case of sexual orientation discrimination, the employer would not need to prove that persons of a particular sexual orientation have been recruited in the past. However, an employer could rebut the prima facie case by, for example, showing that it had clearly distanced itself from the public statements and by pointing to the existence of a recruitment policy aimed at ensuring compliance with the principle of equal treatment. [Asociatia ACCEPT v Consiliul National pentru Combaterea Discriminarii]
SEE “EMPLOYER TRAPS AND OTHER TIPS”
REDUNDANCY IN POOR PERFORMERS
Sometimes, redundancy can disguise dismissal for poor performance. A recent EAT (Employment Appeal Tribunal) decision highlights the tension between the two. Mr M threatened to leave, so his employer recruited another Practice Manager. The new recruit proved to be more capable. Mr M did not resign, at which point the medical practice had two Managers but only needed one. Mr M was made redundant and his more capable replacement retained. The EAT accepted that Mr M’s dismissal was due to redundancy and not, as might seem, a disguised performance dismissal. But his dismissal was held to be unfair, as it had been pre-determined and consultation was a sham. However, his compensation was reduced by 100% because his selection was inevitable given his shortcomings.
Employers should note that the case does not give employers the green light to hire an employee alongside a poor performer in order to make the poor performer redundant. The employer here had not recruited the second employee with that in mind or because Mr M was under-performing. However, it shows that there is scope to establish a redundancy if an employer recruits extra staff (who may turn out to be more capable) and is then faced with more employees than it needs. [Malekout v Ahmed & Others (t/as the Medical Centre)]
What’s in the pipeline
EMPLOYEE SHAREHOLDER STATUS
Regular subscribers will recall that the new Employee Shareholders proposals were announced in October 2012. The idea was to give companies flexibility as to how to hire their staff and help their companies grow. The proposals were aimed at the small-to-medium fast-growing companies. The idea is that employees should be given the opportunity to give up some of their employment rights in return for shares in the company. Originally, it was called Employee Owner Status but that has now been changed to Employee Shareholder Status. The shares to be allotted to the employee must have a minimum value of £2000. There is no minimum value on the shares that can be given to employee shareholders but the exemption from Capital Gains Tax will only apply to shares having a value of up to £50,000 on acquisition.
The scheme has not been finalized yet but here is an up-date.
The House of Lords has approved some amendments to the Employee Shareholders Scheme:
1. A company which is wanting to use the scheme must give an individual a written statement of the particulars of the status of employee shareholder, specifying the employment rights he or she will give up and detailing the rights, restrictions and other conditions attached to the shares and will say, e.g. whether the shares have any voting or dividend rights, whether they can be bought back or redeemed etc. This written statement of employee shareholder particulars will be in addition to the statement that employees are already entitled to have under the Employment Rights Act (i.e. setting out their terms and conditions)
2. An individual, once he or she has received the written statement of particulars, must be given independent advice as to the terms and effect of entering into the scheme. Unless independent advice is received, and the individual has been given seven days to consider the advice, the agreement will have no effect in removing his or employment rights. Acceptance of an employee-shareholder contract within that seven-day period will also have no legal effect. Under the revised scheme, even if the individual decides not to take up the job, the company will be required to meet the “reasonable costs” of the advice.
The scheme is not without criticism, e.g. the impact the proposals will have on industrial relations and the trust between employee and employer; also, that the employee shareholder status could be manipulated to facilitate tax avoidance or benefit senior employees only; also, many small companies may not be in a position to offer employee shareholder status at all, as £2000-worth of shares may be a significant percentage of the share capital.
The proposals may be seen as a good thing for senior employees who may be less concerned about the loss of unfair and redundancy rights. Also, they may be willing to acquire more than the minimum £2000-worth of shares and incur the up-front tax charge.
The Employer Traps and Other Tips
FIXED TERM STAFF
The fact that a person is recruited for a fixed term does not prevent them being a proper employee. A fixed term contract ends either on the expiry of the fixed term; on the completion of a particular task; or on a specified event. Remember that fixed-termers are entitled to basic employment rights, e.g. the national minimum wage, paid holiday, protection against discrimination etc. A fixed-termer who works for more than one month must also be given a written statement of terms and conditions of employment. If you treat your fixed-term employee less favourably than his or her comparator (another employee who is doing the same or broadly similar work), then you can be in breach of the statutory regulations protecting fixed-termers. For example, they must be allowed the same access for training and promotion as permanent employees and should not be selected for redundancy just because they are fixed term. You must inform fixed-termers about permanent employment opportunities. It is only possible for an employer to treat a fixed-termer less favourably if it can be “objectively justified”.
DISABILITY DISCRIMINATION
If you have an employee who has health issues you should make further enquiries to establish whether their problem amounts to a physical or mental impairment so as to render them disabled under the Equality Act 2010. Failure to make enquiries and to take appropriate steps to make adjustment would render you liable for discrimination. Reasonable adjustments can include making adjustments to premises, altering hours of working or training, arranging for an outside agency to give assistance (for which the employer is not usually liable). Be aware that the Code of Practice now says that employers must “do all that they can reasonably be expected to do” to find out whether an employee has a disability, which indicates that reasonable enquiries should be made (although not at the interview stage except to ascertain whether reasonable adjustments can be made to enable them to attend the interview). Disability discrimination is a very tricky area so it is always better to take advice if unsure. If in doubt, shout.
EQUAL OPPORTUNITIES POLICY
The Spanish case referred to in this newsletter shows that an employee could get you, the employer, into trouble unwittingly or without you having done anything wrong. If you do find yourself being accused of discrimination, of whatever kind, one of the first things that an Employment Tribunal would want to see is an Equal Opportunities Policy in place showing (at the very least) that you as the employer are aware of these issues and take steps to prevent discrimination happening.
Other news from Breeze and Wyles
Debt Recovery Service
We offer a low cost, fixed fee debt recovery service aimed at assisting businesses to chase unpaid invoices. An initial letter to a debtor costs from just £2.00 plus VAT. This means that businesses can cost effectively chase their aged debtors. Many businesses now use this service to chase debts that otherwise would have been written off, because it offers such a cost effective and efficient solution. For further information please contact Rita Wright at:
rita.wright@breezeandwyles.co.uk  or telephone 01992 558411.
Breeze and Wyles Solicitors LLP is a leading law firm with offices throughout Hertfordshire and Middlesex, providing quality legal service in all of the mainstream areas of the Law for over 90 years.
We are one of very few law firms that offer services online. Check out our services Solution for volume legal instruction at www.breezeplus.co.uk

When blaming yourself just won’t wash!

Mechanic fails in his attempt to win damages for injuries resulting from his own actions as sole company director
A motor mechanic who lost a finger working in his company’s workshop has failed in his attempt to win damages from his insurers, after trying to claim for his own negligence as the sole company director.
Peter Brumder tried to win damages from his company insurers after his finger was severed by a hydraulic ramp, on the basis that the Company was in breach of their statutory duty to maintain the hydraulic ramp in efficient working order.
But although the Company had breached their absolute statutory obligation to maintain equipment in efficient working order, the claim was unsuccessful because the court ruled that Mr Brumder, as sole director and shareholder of the Company, was in breach of his obligation to exercise reasonable care to enable the Company to fulfil its obligations.
The case of Brumder v Motornet went all the way to the Court of Appeal, where the claim was dismissed on the grounds that as a director of the company, Mr Brumder should have been aware of his health and safety duties and by failing in those, he had breached his duty as a director under the Companies Act 2006. He was a wrongdoer and he could not gain advantage from his own wrongdoing.
Said corporate expert Brendan O’Brien of Breeze & Wyles Solicitors LLP : “The statutory obligation to maintain work equipment is an absolute duty. If you are running a business on your own, it’s no good thinking that it’s only me and I’ll be careful. Sole directors and sole traders must take steps to ensure that they are fulfilling their statutory obligations and keeping up to date with legislation and ensuring equipment is properly maintained.”
ENDS
Brumder v Motornet [2013] EWCA Civ 195
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This is not legal advice; it is intended to provide information of general interest about current legal issues.