How to fund innovation within your business
26 September 2019
Ahead of their attendance at Venturefest North West, tax relief specialists Catax explain how thousands of SMEs could be capitalising on Government incentives to deliver continuous innovation and sustained business growth.
Innovation and business development are rife in the UK, however both normally require significant investment from businesses - which can be especially difficult for start-ups and SMEs to source. Tax relief can be an effective way to bridge this funding gap.
One of the most commonly known forms of tax relief is Research & Development (R&D), which is awarded to businesses that invest in innovation. This usually involves developing new systems, processes, products, materials, devices, or any changes to the way a business works.
Despite being available in the UK since 2000, R&D tax relief is still largely under-claimed. Despite the abundance of innovation being carried out by businesses, HMRC statistics show that, only around 43,000 R&D claims were made in 2015-16. That only equates to around 0.8% of all the businesses in the UK.
The UK government is now looking to increase its R&D expenditure as a % of GDP over the next decade, from 1.7% in 2016 to 2.4% in 2027. That means an increasing focus on providing the right reliefs to help companies develop new innovations in their sectors – and conditions in which they will continue to invest.
Catax are experts in specialist forms of tax relief and have been helping businesses claim back on R&D since 2014. The average claims we see for R&D are in excess of £54,000 – a sum that would make a real difference to most companies’ annual accounts. Nationally, UK SMEs could be missing out on billions of pounds in unclaimed R&D tax relief.
One of the most common reasons for not claiming is lack of awareness – many businesses are unaware that they may be eligible for R&D tax relief. HMRC was careful to define R&D in such a way that it could apply to diverse work across multiple industries, to turbocharge innovation across every sector.
For example, a restaurant business developing a new seasonal menu, or a construction company using new and sustainable building materials would both qualify as R&D.
Another lesser-known form of relief is the Patent Box. This form of tax relief, introduced in 2013, offers a reduced rate of corporation tax (just 10 per cent) on profits made from patents. This equates to nearly half the rate of corporation tax payable on IP-related income, making a huge difference to a business’s balance sheet.
Yet a Censuswide survey of senior and middle managers suggests more than half of UK companies (54%) are unaware that Patent Box tax relief is available to them, which explains the low take-up.
More than 5,600 patents, on average, were granted each year between 2012 and 2017, according to government figures. Although Patent Box claims over this period have never exceeded 1,160 in a year, this tax relief still amounts to £754.3 million.
If your company has registered patents, it would be worth checking how much income they bring in, something that Catax can help advise on. The Patent Box can apply to sales related to or stemming from the patents in a multitude of ways, so a thorough understanding of the rules is vital to ensuring no opportunity is missed.
Every business should regularly carry out a full IP audit to review all R&D activity, to ascertain whether anything could be patented to benefit from Patent Box tax relief.
If a company is claiming R&D tax credits developing innovative products and services, it should also protect and capitalise on the resulting IP through licenses, sales and the Patent Box tax relief.
This should lead to a major boost in income, which can then be reinvested to fuel further innovation and growth.
If you’d like to learn more about claiming tax relief, visit Catax at Venturefest North West, call 0300 303 1903, or email firstname.lastname@example.org.