Patents, general considerations

A UK patent is granted under the laws of the UK, usually, by the UK Intellectual Property Office. Obtaining a patent can be a difficult and expensive endeavour. A patent only protects an invention in the country where the patent is registered, and so multiple patents may be required across different jurisdictions.

To be granted a patent, an invention must be all of the following:

  • something that can be made or used
  • new
  • inventive – not just a simple modification to something that already exists

The owner of the patent can take legal action against those who use the patented invention without permission. This falls under the heading of patent rights which are the right to do or authorise the doing of anything that would, but for that right, be an infringement of the patent.

Once a patent is granted, the holder will need to pay renewal fees every year to maintain protection. The amount increases every year the patent is ‘live’. This is to avoid placing too much of a financial burden on the patent holder in the early life of the patent when they are likely to have other costs.

The Patent Box allows companies to apply a lower 10% Corporation Tax rate on profits arising from patent exploitation and which are covered in whole or part by a UK patent.

Setting off trading losses against other income

Where an individual makes a loss in a trade or incurs a loss as a partner in a partnership trade, the tax rules allow the loss to be set against general income. Certain trade losses may be offset against general income. It may also be possible to carry trade losses back to earlier years or forward to subsequent years. However, partial claims are not allowed. This means that a loss set against income for a particular year must be set as far as possible against that income, even if this means that personal allowances available for that year are not fully utilised.

This relief against general income extends to:

  1. losses in trades (including a profession or vocation), provided they are carried out on a commercial basis and with a view to the realisation of profits;
  2. losses arising out of land – mines, quarries and other concerns;
  3. but not to relief for losses in an employment or office; these are not trade losses.

By way of explanation, HMRC’s internal manuals provide the following example:

Mark has been carrying on a trade for a number of years and makes up his accounts annually to 30 September. He makes a loss of £20,000 in the year ended 30 September 2012; that is, for the tax year 2012-2013. He can relieve that loss against his general income in 2012-2013 or by reference to his general income in 2011-2012 or his general income in both 2011-2012 and 2012-2013. The claim must be made by 31 January 2015.

If the loss is to be the subject of claims for both years, Mark must choose which claim has priority. But partial claims cannot be made. The loss used in the priority year is an amount equal to income of that year. The remaining loss can be used in the other year.

If Mark had general income of £22,000 in 2012-2013 and £5,000 in 2011-2012, the alternative reliefs under S64 ITA 2007 would be:

  • £20,000 against 2012-2013, or
  • £5,000 against 2011-2012 and £15,000 against 2012-2013.

It is not possible to relieve, say, £2,000 against 2011-2012 and £18,000 in 2012-2013. The claim for each year must be the smaller of the loss available for relief and the income available to be relieved.

Basis periods – the general rules

A basis period is the time period for which the self-employed or partnerships pay tax in each tax year. The general rule is that the profits for a tax year are those arising in the period of 12 months ending with the accounting date in that year. The use of basis periods ensure that taxable profits are allocated to the correct accounting period. The general rule will always apply to a continuing trade using the same accounting date each year from Year 3 onwards.

However, different rules apply under the following circumstances:

  • For the early years after trading commenced;
  • For a year in which there is no accounting date;
  • For the year of cessation;
  • Where there is a change of accounting date.

These rules ensure that there are no gaps in the periods for which profit is taxed (the basis period for the tax year) but there may be overlaps. The issue of overlap profits can happen in the first 2 or 3 years of the business or in any year in which there is a change of basis period due to a change of accounting date. Overlap relief is a mandatory deduction and can be used to reduce the profits on the final tax return when the business ceases trading or if the accounting period subsequently changes.

Brexit and VAT Mini One Stop Shop

HMRC has confirmed that after Brexit, you will not be able to use the UK’s VAT Mini One Stop Shop (MOSS) to declare and pay VAT. The final return period for the UK’s VAT MOSS system will be the period ending 31 December 2019. However, on this final return you should only include sales made before Brexit.

HMRC has confirmed that after Brexit, you will be able to use the UK’s VAT MOSS system to:

  • submit your final return by 20 January 2020
  • amend your final return until 14 February 2020
  • update your registration details until 14 February 2020
  • view previous returns

If you want to continue to use MOSS for sales you make after the UK leaves the EU, you will need to register for MOSS in any EU Member State. Alternatively, you will need to register for VAT in each EU member state where you sell digital services to consumers. The digital services threshold of €10,000 (£8,818) will no longer apply.

The place of supply rules on the sale of business to consumer (B2C) digital services is determined by the location of the customer who receives the service rather than the location of the supplier. The MOSS scheme is an electronic system that allows businesses to register in only one EU member state and submit a single VAT return and payment each quarter for all their cross-border supplies of digital services.

Brexit and making an EU VAT refund claim

The VAT paid in other EU countries is often recoverable by VAT-registered businesses in the UK, who bought goods or services for business use. The exact rules that govern what VAT is refundable depends on the other countries rules for claiming input tax. It is important to note that VAT incurred in foreign countries can never by reclaimed on a domestic UK VAT return.

Claims must be made electronically via the tax authority in which the claimant is established: i.e. a claim from a UK company to any other EU country must be submitted electronically to HMRC. The deadline for the submission of a refund request for expenses incurred in other EU member states during the 2018 calendar year expires on 30 September 2019. HMRC electronically will forward the claim to the country where the VAT was paid. 

If the UK leaves the EU as planned on 31 October 2019, then HMRC’s VAT online services to claim a VAT refund from an EU member state will become unavailable (after 5pm on 31 October 2019). The ability to view previous claims will remain.

This means that after Brexit, you’ll need to use the process for the EU country where you’re claiming a VAT refund. This will likely need to be done using the existing process available to non-EU businesses. This will also apply to unclaimed expenses you had before Brexit.

If you have already incurred significant VAT in the EU during the current calendar year, it may be worthwhile making a claim before the 31 October 2019 via the HMRC portal. The rules allow for partial claims to be made.

Tax for provision of parking spaces

There are some important rules to be aware of if you provide parking spaces to your employees. If the parking places you provide are at, or near your employee’s workplace, then you are entitled to an exemption. This means there is no requirement to report anything to HMRC and you would not be required to pay any additional tax or National Insurance for these parking spaces. These rules include the provision of parking spaces for cars or motorbikes at, or near, the employee’s place of work. The provision of facilities for parking bicycles is also exempt.

There is no legal definition of the words 'at or near' in the relevant act and HMRC say the exemption is available in any case where parking facilities can be said to be within a reasonable distance from the place of work, having regard to the nature of the locality. It does not matter if the car park is not the one closest to the place of work.

However, if you provide parking places which aren’t covered by an exemption, you will need to report them on form P11D and pay Class 1A National Insurance on the cost of providing the parking places.

The exemption does not apply to parking spaces you provide that are not either:

  • at or near the employee’s workplace
  • for use on a business journey.

To-do list if selling your business

If you are selling your business, there are some important actions you must take in order to properly finalise your affairs. We have summarised below some of the main steps you need to take if closing your business. Please note that this is not an exhaustive list and it is important to check what else may be required.

Self-employed sole trader

  • Notify any staff about when and why you are selling your business.
  • Keep staff informed about redundancy terms or relocation packages and be mindful not to breach your employees’ rights.
  • Notify HMRC. There is an online form that can be completed to tell HMRC you are closing your business. The form covers both Self-Assessment and National Insurance.
  • Cancel your VAT registration or possibly transfer to new business owner.
  • Consider your liability to Capital Gains Tax and whether you can benefit from reliefs including Entrepreneurs’ Relief.

Business partnership

  • Your responsibilities when selling a partnership will depend on whether you’re selling your share of the partnership or the entire partnership.
  • Keep staff informed about redundancy terms or relocation packages and be mindful not to breach your employees’ rights.
  • If you will cease being self-employed, cancel your Class 2 National Insurance contributions.
  • Cancel your VAT registration or possibly transfer to new business owner.
  • Consider your liability to Capital Gains Tax and whether you can benefit from reliefs including Entrepreneurs’ Relief.

Limited company

  • Your responsibilities when selling a limited company will depend on whether you’re selling your entire shareholding, or the company is selling part of its' business. 
  • Keep staff informed about redundancy terms or relocation packages and be mindful not to breach your employees’ rights.
  • If you are selling your entire shareholding you should appoint new directors before you resign as a director yourself.
  • Consider your liability to Capital Gains Tax and whether you can benefit from reliefs including Entrepreneurs’ Relief.
  • If there are charges against your company, for example a mortgage on your house to secure a business loan, you must let the provider know within 21 days of the sale.
  • You may want to transfer your VAT registration to the new owner.

NIC after State Pension Age

If you have reached the State Pension age and continue to work in most cases, you no longer need to pay National Insurance Contributions (NICs).

At State Pension age, the requirement to pay Class 1 and Class 2 NICs ceases. However, you will remain liable to pay any NICs due to be paid to you before reaching the State Pension age. If you continue working, you need to provide your employer with proof of your age.

Your employer remains liable to pay secondary Class 1 employer NICs. If you would rather not provide proof of age to your employer, you can request a letter (known as an age exception certificate) from HMRC confirming you have reached State Pension age and are no longer required to pay NICs.

If you are self-employed, you will need to pay Class 4 NICs for the remainder of the tax year in which you reach State Pension age but will be exempt from the following year.

We can help you check if you think you may have overpaid NICs and arrange for a refund if an overpayment has occurred.

Tax Diary October/November 2019

1 October 2019 – Due date for Corporation Tax due for the year ended 31 December 2018.

19 October 2019 – PAYE and NIC deductions due for month ended 5 October 2019. (If you pay your tax electronically the due date is 22 October 2019.)

19 October 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2019. 

19 October 2019 – CIS tax deducted for the month ended 5 October 2019 is payable by today.

31 October 2019 – Latest date you can file a paper version of your 2018-19 self-assessment tax return.

1 November 2019 – Due date for Corporation Tax due for the year ended 31 January 2019.

19 November 2019 – PAYE and NIC deductions due for month ended 5 November 2019. (If you pay your tax electronically the due date is 22 November 2019.)

19 November 2019 – Filing deadline for the CIS300 monthly return for the month ended 5 November 2019. 

19 November 2019 – CIS tax deducted for the month ended 5 November 2019 is payable by today.

Paper Self-Assessment return deadline

The 2018-19 tax return deadline for taxpayers who continue to submit paper Self-Assessment returns is 31 October 2019. Late submission of a Self-Assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2020.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically and therefore benefit from an additional three months (until 31 January 2020) in which to submit a return.

Taxpayers with certain underpayments in the 2018-19 tax year can elect to have this amount collected via their tax code (in 2020-21), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return remains outstanding, further, higher penalties will be charged from six months and twelve months.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2019, have an extended deadline which runs for three months from the date they received the letter to submit a paper return.