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Income Tax | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Tax | Income Tax The Company is primarily subject to corporation taxes in the U.S. and the U.K.. The calculation of the Company’s tax provision involves the application of both U.S. and U.K. tax law and requires judgment and estimates. The provision for income taxes is determined using the asset and liability approach. Tax laws may require items to be included in tax filings at different times than the items are reflected in the financial statements. A current asset or liability is recognized for the estimated taxes receivable or payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are initially recognized at enacted tax rates in force at the time of initial recognition and are subsequently adjusted for any enacted changes in tax rates and tax laws. Subsequent changes to deferred taxes originally recognized in equity are recognized in income. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company has recorded a full valuation allowance against the deferred tax assets in excess of its deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences. The Company records interest and penalties related to income tax matters as part of income tax expense. The Company accounts for uncertainty in income taxes by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated financial statements. The amount of benefits that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties. The components of the Company’s loss before income taxes are as follows:
|  | Year Ended December 31, 2023 |  | Year Ended December 31, 2022 |
Foreign |  | $ | (499,810) |  |  | $ | (46,868) |  |
United States |  | (115,118) |  |  | (31,914) |  |
Loss before income taxes |  | $ | (614,928) |  |  | $ | (78,782) |  |
The Company has not recognized a current or deferred provision for federal, state or non-United States income taxes in either of the years ending December 31, 2023 or 2022, respectively. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The major components of deferred tax assets and liabilities are as follows:
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 58,975 |  |  | $ | 52,948 |
Research and development credit carryforward | 4,522 |  |  | 1,723 |
Stock-based compensation | 4,128 |  |  | 3,879 |
Section 174 Research and Development Capitalization | 15,982 |  |  | 3,553 |
Lease liability | 1,143 |  |  | 737 |
Other | 1,260 |  |  | 2,053 |
Total deferred tax assets | 86,010 |  |  | 64,893 |
Deferred tax liabilities: |  |  |
Right-of-use assets | (1,085) |  |  | (651) |
Other | (174) |  |  | (226)
Total deferred tax liabilities | (1,259) |  |  | (877)
Net deferred tax assets before valuation allowance | 84,751 |  | 64,016
Valuation allowance | (84,751) |  | (64,016)
Deferred tax, net | $ | — |  |  | $ | — |
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which are comprised primarily of net operating loss carryforwards and research and development costs capitalized for tax purposes. Management has considered the Company’s history of cumulative net losses in the United States (“U.S.”) and the United Kingdom (“U.K.”), estimated future taxable income, as well as prudent and feasible tax planning strategies, and has concluded that it is more likely than not that the Company will not realize the benefits of its U.S. federal and state deferred tax assets and U.K. deferred tax assets. Accordingly, a full valuation allowance has been established against these net deferred tax assets as of December 31, 2023 and 2022, respectively. The Company reevaluates the positive and negative evidence at each reporting period. The change in the valuation allowance was as follows:
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022
Valuation allowance as of beginning of year | $ | (64,016) |  |  | $ | (51,746) |
Net increase recorded to the income tax provision | (20,735) |  |  | (12,270) |
Valuation allowance as of end of year | $ | (84,751) |  |  | $ | (64,016) |
As of December 31, 2023 and 2022, the Company had U.S. Federal gross operating loss carryforwards of approximately $48,184 and $11,620, respectively, which may be available to offset future income tax liabilities. The 2017 Tax Cuts and Jobs Act (“TCJA”) will generally allow losses incurred after 2017 to be carried over indefinitely, but will generally limit the net operating loss deduction to the lesser of the net operating loss carryover or 80% of a corporation’s taxable income (subject to Section 382 of the Internal Revenue Code of 1986, as amended). In addition, the Company has approximately $3,705 in U.S. State gross loss carryforwards which expire through various dates through 2043 and as of December 31, 2023, the Company had an estimated U.S. federal and state research and development tax credit carryforwards of $2,900 and $900, respectively, which may be available to offset future tax liabilities, and each begin to expire in 2041 and 2037, respectively. The Company also had approximately $194,454 in U.K. gross loss carryforwards available to use against future taxable profits on a year-by-year basis. To the extent that U.K. taxable profits exceed £5,000 in each year, the loss available to utilize against profits in excess of £5,000 will be restricted to 50%. The U.K. loss carryforwards do not lapse and therefore, the full amount will be relieved over time provided there are sufficient profits against which the losses can be utilized. Utilization of the U.S. net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation. Any limitation may result in the loss of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. U.K. tax losses are subject to additional restrictions where there is a change in ownership in the business and certain other conditions are met. An ownership change of a UK tax resident company would occur where (directly or indirectly) a single person acquires more than half of the ordinary share capital of a company, or two or more persons each acquire a holding of at least 5% of the ordinary share capital of a company and these holdings together amount to more than half the ordinary share capital of a company. Where a change in ownership has occurred, and within three years prior to that change in ownership and five years afterwards, there is a major change in the nature and conduct of trade of that company or the trade of that business becomes small or negligible, any losses carried forward will be extinguished from the point of the change in ownership. In addition, losses accrued subsequent to April 1, 2017 will be extinguished on a change of ownership when there is a major change in the nature or conduct of a company’s business, or where there is a major change in the scale of that business, or a company ceases to carry on a particular trade or business. The Company has not completed a study to assess whether a change of ownership has occurred since its formation, or whether there has been a major change in the Company’s business that would restrict the U.K. tax losses. Any limitation may result in the loss of a portion of the net operating loss carryforwards before utilization. The 2017 Tax Cuts and Jobs Act (“TCJA”) created a requirement that US corporations include in income earnings of certain controlled foreign corporations (“CFC”) under the global intangible low taxed income (“GILTI”) regime. The Company is allowed to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as period expense only. The Company has elected to account for GILTI in the year the tax is incurred and include the current tax impact of GILTI in the effective tax rate. Given the Company’s loss position in the U.S. and the valuation allowance recorded against its U.S. net deferred tax assets, these provisions have not had a material impact on the Company’s consolidated financial statements. IRC Section 174 generally permitted taxpayers that incurred research expenses to deduct them in the current year. For tax years beginning before January 1, 2022, taxpayers were able to make an election with respect to research and experimental (“R&E”) expenditures incurred in connection with a trade or business to either currently deduct or defer and amortize such expenditures. The TCJA amended this provision to require that R&E expenditures be capitalized and amortized, but delayed the effective date of this amendment, which applies to tax years beginning January 1, 2022 or later. As such, the changes to IRC Section 174 pursuant to the TCJA are currently applicable to the Company for the 2022 tax year. R&E expenditures attributable to U.S. based research must be amortized over a period of five years and R&E expenditures attributable to research conducted outside of the U.S. must be amortized over a period of 15 years. As such, the Company is capitalizing $73,129 R&E expenditures with a net adjustment of $65,816 to account for the capitalization and amortization of R&D expenses incurred in the U.S. A reconciliation of the Company’s effective tax rate to the U.S. federal statutory rate is as follows:
|  | Year Ended December 31, 2023 |  | Year Ended December 31, 2022 |
U.S. federal income tax statutory rate |  | 21.0 | % |  | 21.0 | % |
Change in valuation allowance |  | (3.4) |  |  | (16.8) |  |
Refundable research and development tax credit |  | 0.3 |  |  | (3.6) |  |
Effect of foreign operations taxed at various rates |  | (17.0) |  |  | 2.1 |  |
Stock-based compensation |  | (0.1) |  |  | (2.2) |  |
Other |  | (0.8) |  |  | (0.5) |  |
|  | — | % |  | — | % |
In the U.K., the Company is entitled to a research and development tax relief for small and medium-sized enterprises which allows the Company an enhanced deduction rate of 230% (up to March 31, 2023) and 186% (from April 1, 2023) on qualifying research and development expenditure (the tax relief). If the Company incurs tax losses, it is entitled to surrender the lesser of unrelieved tax loss sustained and the tax relief. As the realization of the tax relief does not depend on generation of future taxable income or the Company’s ongoing tax status or tax position, the Company does not consider the tax relief as an element of income tax accounting under ASC 740. For the year ended December 31, 2023 and 2022, the Company recognized research and development tax relief of $946 and $4,523 respectively, which is included in other operating income in the consolidated statements of operations and other comprehensive loss. It is the intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations and not to repatriate the earnings to the U.S. Accordingly, the Company does not provide for deferred taxes on differences between financial reporting and tax basis in its investments in foreign subsidiaries as they are considered permanent in duration or are not expected to reverse in the foreseeable future. As of December 31, 2023, there are no unremitted earnings of the Company’s foreign subsidiaries. The Company records unrecognized tax benefits in accordance with ASC 740-10, Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As of December 31, 2023 and 2022, the Company had total unrecognized tax benefits of $1,064 and $0, respectively. Due to the Company’s full valuation allowance, the unrecognized tax benefits would not materially impact the Company’s effective tax rate when recognized. The Company does not anticipate the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as part of its income tax provision. For the years ended December 31, 2023 and 2022, the Company had no interest or penalties related to unrecognized tax benefits. A reconciliation of unrecognized tax benefits from continuing operations is as follows:
|  | Year Ended December 31, 2023 |  | Year Ended December 31, 2022
Unrecognized tax benefits, beginning of year |  | $ | — |  |  | $ | — |
Increases related to prior year tax positions |  | 610 |  |  | — |
Decreases related to prior year tax positions |  | — |  |  | — |
Increases related to current year tax positions |  | 454 |  |  | — |
Unrecognized tax benefits, end of year |  | $ | 1,064 |  |  | $ | — |
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and foreign jurisdictions, where applicable. the U.S. In the U.S., tax years from 2020 remain subject to examination by the U.S. Internal Revenue Service and state tax authorities. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for years 2020 through present. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In the U.K., tax returns for the year ended December 31, 2022 remains subject to examination by HMRC.

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