Patent Box: relevant IP profits: calculating profits or losses of a trade: shortfall in R&D expenditure: example
A company has ‘average R&D expenditure’ of £1000. 75% of this is £750.
Its results for the first four AP’s (each of 12 months) after electing in to the regime are:
|Total Gross Income||£3000||£10000||£15000||£20000|
In AP1 actual R&D exceeds ‘average R&D expenditure’ by £500, so this £500 can be carried forward as an ‘additional amount’ in AP 2 (S357CH(8)).
AP2’s actual R&D is £800 which is less than ‘average R&D expenditure’ but greater than 75% of ‘average R&D expenditure’ so no adjustment is required. £500 continues to be carried forward as an additional amount in AP 3 (S357CH (11)).
In AP3 actual R&D is only £350, which is £400 below the 75% threshold of £750. The brought forward £500 is added to the actual amount so there is no need to make any adjustment. £400 of this cannot be carried forward further, but £100 can (S357CH(9)).
In AP4 actual R&D spend falls again to £200. The brought forward £100 can be treated as R&D spend of AP 4. As the total is £300 there is still a shortfall of £450, therefore this amount of R&D spend for patent box purposes in AP4 is increased by £450 to £650 (that is, £200 actual + £450 increase).
The profits of the trade for the purposes of step 3 of 357C for AP4 will become:
|Less Other costs||(15200)|
|Step 3 profits||4150|