14.

Income taxes

The components of loss from continuing operations before income taxes are as follows for the years ended

December

31:

(in thousands)	2019			2018
Domestic (United Kingdom)	$	(8,368	)	$	12,623
Foreign (United States)		4,611			(37,404	)
Loss from continuing operations before income taxes	$	(3,757	)	$	(24,781	)

The components for the income tax (expense) benefit from continuing operations are as follows for the years ended

December

31:

(in thousands)	2019			2018
Current:
Federal	$	—		$	—
U.K.		1,401			(532	)
Japan		(78	)		(45	)
China		(46	)		(13	)
State		(119	)		—
Total current provision		1,158			(590	)
Deferred:
Federal		1,515			30,665
U.K.		(896	)		(1,343	)
Japan		85			—
State		555			8,554
Total deferred benefit		1,259			37,876
Income tax benefit from continuing operations	$	2,417		$	37,286

Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations and other comprehensive income. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, we must allocate the tax provision to the other categories of earnings. As a result, during the year ended

December 31, 2019,

the Company recorded a tax expense of approximately

$0.2

million in other comprehensive income related to unrealized gains on foreign currency translation adjustments in the U.K. A corresponding tax benefit was recorded as part of continuing operations. During the year ended

December 31, 2018,

the Company recorded a tax expense of approximately

$39.4

million in discontinued operations related to the sale of the Company’s U.S. Laboratory Services Business to Quest. A corresponding tax benefit was recorded as part of continuing operations, representing the valuation allowance released on the beginning of the year net operating losses.

The Company’s effective income tax rate differs from the statutory domestic (United Kingdom) income tax rate as follows for the years ended

December 31:

	2019			2018
Income tax rate		19.0	%		19.0	%
U.K. research and development credit		16.2			1.8
Permanent items		(6.1	)		1.0
Prior period adjustments		5.9			(5.2	)
State taxes		(19.0	)		9.2
Other		(0.4	)		2.0
Effect of foreign tax rate differential		(3.4	)		2.9
Uncertain tax positions		2.5			(1.7	)
Valuation allowance		49.6			121.5
Effective income tax rate		64.3	%		150.5	%

The Company is headquartered in the United Kingdom and the statutory U.K. corporate tax rate for each of the years ended

December 31, 2019

and

2018

19%

. The U.S. federal corporate tax rate for each of the years ended

December 31, 2019

and

2018

was

21%

The Company is subject to taxation in the U.S. and various state, local and foreign jurisdictions. The Company remains subject to examination by various tax authorities for tax years

2016

through

2019

. With a few exceptions, the Company is

longer subject to examinations by tax authorities for the tax years

2015

and prior. However, net operating losses from the tax years

2015

and prior would be subject to examination if and when used in a future tax return to offset taxable income. The Company’s policy is to recognize income tax related penalties and interest, if any, in its provision for income taxes and, to the extent applicable, in the corresponding income tax assets and liabilities, including any amounts for uncertain tax positions.

The United Kingdom’s Summer Finance Bill, which was enacted on

September 15, 2016,

contained reductions in corporation tax to

19%

from

April 1, 2017

and

17%

from

April 1, 2020.

The current United Kingdom government has announced the intention to put the proposed reduction to

17%

on hold. However at the time of signing these accounts

legislation has been passed to effect this. Accordingly, the Company has continued to measure its U.K. deferred taxes at the statutory tax rate of

17%.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows for the years ended

December

31:

(in thousands)	2019			2018

Deferred tax assets:
U.S. federal net operating losses	$	11,410		$	11,478
State net operating losses (net of federal)		2,234			2,865
U.S. federal research and development credits		948			849
U.K. net operating losses		1,132			496
Share options		1,742			1,724
Accrued liabilities		406			1,052
Operating lease liabilities		101			—
State credits		536			512
Other		99			136
Total deferred tax assets		18,608			19,112
Valuation allowance		(16,127	)		(17,991	)
Total deferred tax assets	$	2,481		$	1,121

Deferred tax liabilities:
Intangibles	$	(24	)	$	—
Operating lease right-of-use assets		(113	)		—
Depreciation		(118	)		—
Other assets		(63	)		(69	)
Total deferred tax liabilities	$	(318	)	$	(69	)

December 22, 2017,

the Tax Cuts and Jobs Act of

2017,

or the TCJA, was enacted. This tax reform legislation makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of

34%

21%

effective on

January 1, 2018.

As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the

21%

rate. This resulted in a decrease in the company’s net deferred tax asset and corresponding valuation allowance of

$21.4

million. As the Company maintained a full valuation allowance against its net deferred tax asset position in the United States, this revaluation did

not

result in an income tax expense or benefit in the prior period. The other provisions of the TCJA did

not

have a material impact on the

2017,

2018

2019

consolidated financial statements.

For the years ended

December 31, 2019

and

2018

, the Company had United Kingdom Net Operating Losses (U.K. NOLs) o

$6.7

million an

$2.9

million, respectively. U.S. federal net operating loss carry forwards for the years ended

December 31, 2019

and

2018

were

$54.3

million a

$54.7

million, respectively. U.S. State net operating loss carryforwards for the years ended

December 31, 2019

and

2018

were

$40.5

million

and

$50.3

million, respectively.

The U.S. federal and state net operating loss carryforwards begin to expire in

2020

and the U.K. NOLs can be carried forward indefinitely.

In the

first

quarter of

2019,

the Company revised its transfer pricing methodology to reflect changes in the Company’s business model following the Transaction. Upon completion of the full transfer pricing study in the

third

quarter of

2019,

the Company reassessed the realizability of its deferred tax assets based on all available evidence. As a result, for the year ended

December 31, 2019,

the Company recorded a reversal of

$3.5

million of the previously recognized valuation allowances against its deferred tax assets in the US and added a

$1.6

million valuation allowance against its net deferred tax assets in the U.K. The Company continues to record a valuation allowance against all other net deferred tax assets in the U.S. since it is

not

‘more likely than

not’

that these amounts will be realized.

The following table reflects the roll-forward of the Company’s valuation allowance:

(in thousands)	2019			2018
Beginning of year (January 1)	$	17,991		$	48,098
Decrease in valuation allowance		(1,864	)		(30,107	)
End of year (December 31)	$	16,127		$	17,991

Interest and penalties related to uncertain tax positions are recorded in tax expense and totale

and

$37,000

for the years ended

December 31, 2019

and

2018

, respectively. The liability recorded for potential penalties and interest

was

$37

,000

at each of

December 31, 2019

and

2018

. The Company had a total recorded liability o

$37,000

$409,000

related to uncertain tax positions, inclusive of penalties and interest, as of

December 31, 2019

and

2018

, respectively, which is included in accrued liabilities in the consolidated balance sheets.

The aggregate changes in the balance of gross uncertain tax positions, which excludes interest and penalties, for the year ended

December 31, 2019

were as follows (in thousands):

Balance at December 31, 2018	$	372
Settlement/decreases related to tax positions taken during prior years		(372	)
Increases related to tax positions taken during prior years		—
Increases related to tax positions taken during the current year		—
Balance at December 31, 2019	$	—

The Company generates research and development credits in the United Kingdom which are refundable if a current year loss is incurred. In the United Kingdom for the year ended

December 31, 2019

amounts were reimbursed for research and development tax credits.