CIRD220460 - Patent Box: relevant IP profits: routine return figure: example
A company develops and manufactures patented electronic products. It has 50 staff, of which 5 are dedicated R&D staff. During the year the company incurred legal costs on defending its patent. Its parent company recharges IT costs.
Set out below is a list of the company’s expenses:
| Expenses | Routine deductions? |
|---|---|
| Audit fees | Yes |
| Bank overdraft interest | No |
| Charitable donations | No |
| Client entertaining | No |
| Companies House fees | No |
| Contractors | Contractors will not have to be marked up provided they are provided through a service provider who supervises and takes responsibility for their activities. Nor will they have to be marked up if they are self-employed workers operating on their own account and not under the terms of a contract between the contractor and a staff provider. |
| Credit check charges | The cost of obtaining credit rating reports represents the purchase of a financial service falling within Head 5 and will therefore need to be marked up. |
| Depreciation | No |
| Exchange losses | No |
| Group recharges | Group recharges will need to be marked up if the amounts are incurred on behalf of the claimant and they relate to expenses that would have been marked up if incurred by the company directly. |
| Human resources | Yes |
| Legal fees | Provided that the legal fees relate to the defence of qualifying IP rights they will not be routine deductions. |
| Marketing costs | If there is no element of consultancy they will not need to be marked up. |
| Mortgage interest | No |
| National insurance | Yes |
| Raw materials | No |
| R&D costs | Provided that the R&D costs qualify for the R&D additional deduction (CIRD220400) they will not need to be marked up. The additional amount for which a CT deduction is given will also not be marked up. |
| Rent and rates | Yes |
| Repairs | Yes |
| Safety supplies | Yes |
| Salaries and pensions | Yes, pension contributions relating to both existing and past employees are routine deductions. |
| Scrap | No |
| Security guards | If the security guards are employees of the company they will need to be marked up. Otherwise, the same considerations that are relevant to contractors will apply. |
| Staff entertaining | Yes |
| Exceptional item | Exceptional items will be marked up if they fall into one of the heads in S357BJA and are not excluded under S357BJB. It would be necessary to establish what the expense relates to. |
| Subscriptions | No |
| Water, light & fuel | Yes |
| VAT penalties | No |