Tech start-ups risk missing tax break

Tech start-ups and other businesses risk missing out on a valuable tax break as they fear the financial and administrative costs of claiming will be prohibitively high, KPMG has warned.

If they don't act though they will miss out on a discounted tax rate of just 10 percent on profits arising from the "Patent Box" tax regime coming in from 1 April 2013.

Jonathan Bridges, associate partner at KPMG in the UK, and its lead advisor on Patent Box claims, said: "Patent Box is another compelling reason to seek patent protection for innovations.

"Many large businesses with significant intellectual property (IP) based profit streams are already closely examining the potential tax benefits Patent Box may bring. But we have noticed that many smaller businesses, such as tech start-ups, do not appear to have considered what savings are available to them."

Bridges said that although the patent protection application process can be slow, it was important to understand that tax benefits from Patent Box would accrue from a patent application date and not only on sales revenues generated once the patent is granted.

KPMG said many tech start-ups wrongly assume that it may not be economically viable for them to claim the tax breaks available under Patent Box because they believe the advisory costs they will incur and the administrative burden of filing a claim will outweigh the cash benefit.

KPMG reckons firms with relevant intellectual property profits of £100,000 per year could potentially make a tax saving of around £6,000 to £12,000. If their relevant profits are £250,000 or more, annual savings are "upwards of £30,000".

To cope with another new tax regime, Ceredigion County Council in mid-west Wales has brought in Logica to replace its legacy payroll system, to enable it to be compliant with the HM Revenue & Customs (HMRC) real-time information (RTI) system for reporting pay, tax, National Insurance and other details.