Tuesday, March 19, 2013

Insolvency Pre-Packs - R3 comments on the Government’s independent review

“R3 welcomes the independent review of pre-packs and believes Government can do more to increase the transparency of what is an extremely useful business rescue tool. We recognise the concerns from within the creditor community about the pre-pack process, particularly over connected party sales, and we hope this review will help to increase confidence in the regime and highlight the vital role pre-packs play in saving businesses and jobs.

“R3 have been calling for key changes to the pre-pack process for some time, which we believe will boost transparency and confidence in the process, whilst protecting this important rescue tool.

“To improve transparency, R3 believe that the Insolvency Service should provide Insolvency Practitioners with detailed criteria of what they expect to be included in the SIP 16 report (explaining the pre-pack to creditors) and provide feedback to Insolvency Practitioners where the report has been judged non-compliant, as recommended in the recent Business, Innovation and Skills Select Committee report. The report also recommend that the criteria by which SIP 16 reports are judged should be published alongside the guidance.

“To further address creditor concerns over pre-pack sales to connected parties, R3 also believes that creditors should be granted the option to appoint an independent liquidator. This would enable the sale to be properly assessed and allow for wrongdoing by any party to be tackled. We believe that, taken together, these changes will go some way to improving the confidence of creditors in the pre-pack process.

“Pre-packs fare considerably better than alternatives in terms of the retention of jobs and returns to secured creditors. This is crucial during the current sluggish recovery. If the economy is to deliver sustainable growth it will need entrepreneurship and to give viable businesses a second chance. We must make sure that any changes do not risk crippling this useful and effective process.”

Lee Manning, R3 President

Monday, March 18, 2013

Tax bonanza for UK patents

PATENT BOX In just two months the UK will have a fiscal regime for innovative companies that will be the envy of many tax havens, writes Kathryn Cooper

From April, profits generated by patented products will qualify for a lower rate of corporation tax, falling in stages to 10 per cent by 2017. For companies with a large amount of intellectual property, the new rules could more than halve their tax bills.

The government has introduced the Patent Box to stem the exodus of top research talent to lower-tax jurisdictions.

The UK has always enjoyed world-class research facilities, but recently many highly paid research posts have disappeared to countries with more favourable tax regimes. The new rules should make the UK a hub for pioneering research and development (R&D) once again, at a cost to the Treasury of nearly £1 billion a year by 2017.

The policy is already having an impact. Last year, drugs giant GlaxoSmithKline announced a £500-million investment in UK manufacturing over the next eight years, creating 1,000 jobs, as a direct result of the Patent Box.

In a recent KPMG survey of tax executives, nearly a quarter said the Patent Box regime would encourage their group to conduct more R&D and high-value manufacturing in the UK. Nearly half said the policy had improved the UK’s competitiveness.

The biggest boon for many companies is that the new regime will apply to existing as well as new patents. And it will not be necessary for an entire product to be patented to qualify. If, say, a bike had a patented chain, worldwide profits from the entire bike could qualify for the lower tax rate. Unpatented products, sold alongside a patented item, will also qualify. So a printer sold with a patented ink cartridge could be included.

Accountants and patent attorneys are, unsurprisingly, expecting a boom in patent applications and the Patent Office has already seen a 14 per cent increase in requests.

“Just one patent covering a relatively small technical feature may be enough for profits from sale of the entire product to be taxed at the reduced rate,” says patent attorney Laura Ramsay at Dehns. “And it’s not just the home markets that are covered, calculations are based on worldwide profits.”

Smaller firms could be deterred from applying to enter the Patent Box because of a perception that the process is expensive, but Ms Ramsay says the benefits would more than outweigh the costs, particularly as companies can potentially make a double corporation tax saving because R&D spending is also eligible for tax credits.

“Companies can get a credit for their R&D spending and, if they patent the results, the income will be taxed at just 10 per cent,” says Frank Buffone, head of R&D tax services at Ernst & Young. “It certainly makes it attractive for global companies looking at where they should base their R&D.”
A patent can cost between £3,000 and £5,000 to reach the grant stage, and this may take one or two years. Firms can claim tax relief for up to six years prior to a patent being granted, although the taxman will claw it back if the patent is subsequently denied.

There are some restrictions. The company must have either developed the product itself, although not necessarily in this country, or be actively managing it.

The Patent Box regime will be phased in gradually, starting with only 60 per cent of the full benefit from April 2013 and increasing by 10 per cent for each tax year until it reaches full effect from April 2017.
To calculate how much of a company’s profits qualify for the lower rate, the taxman will take all the profits attributable to the patent and knock off 10 per cent to give a “residual” profit. A further deduction will then be made to take account of returns from marketing and brand rights.

Nevertheless, many influential commentators remain sceptical about the benefits of the Patent Box. The Institute for Fiscal Studies has warned it will do little to boost R&D, particularly as existing patents will qualify for the lower tax rate.

“If you were going to sit down and design innovation policy, you would not design the Patent Box because it targets the income rather than the underlying innovation,” says the institute’s Helen Miller.
There is even a danger that multinationals could simply route their patent income through the UK, rather than base their R&D operations here as the government hopes – not dissimilar to the practice of “profit shifting” by big multinationals that has attracted such public outcry.

Accountants argue, however, that the opportunities for abuse have been greatly reduced by the general anti-avoidance rule, or GAAR, which also comes into force in April. This will put the onus on companies to disclose any scheme that has been set up specifically to avoid tax.

Tax experts agree that the economic benefits of the Patent Box will far outweigh the risks of widespread avoidance. “Attracting inward investment brings with it much more in terms of the benefits to our economy than the costs of reducing corporation tax,” says Richard Woolhouse, head of tax at the CBI. “You get it back many times over.”  Tax bonanza for UK patents:

Thursday, March 07, 2013

Insolvency Service winds down debt collection firms

Two linked debt collection companies have been ordered into liquidation for “unacceptable” business practices following an investigation by the Insolvency Service.

Wakefield-based Baker and Bond Ltd (BBL) and Baker and Bond (UK) Ltd (BBUK) were linked through a common director Stuart Paul Cooper.

Read on here Insolvency Service winds down debt collection firms: