While most science and technology businesses are aware of what Research and Development (R&D) Tax Credits can offer them, it’s a common misconception that they are only available to high tech companies. Innovation in R&D takes place in all business sectors, from automotive and aviation, through to manufacturing, electronics, food, energy and insurance. At CRM, we have helped many clients in various sectors to claim back money that they didn’t realise was available to them.
The tax credits are calculated on your Research and Development spend which is deducted from your taxable profits or added to your losses to give a Corporation Tax reduction (if in profit) or a cash credit (if loss-making) or a combination of both.
An anti-fraud measure in the form of a cap on the amount of refundable R&D Tax Credits available to loss-making SMEs comes into force from April 2020. The majority of companies will be unaffected by this change but some companies with low PAYE and NICs liability relative to their R&D spend will lose out.
A lesser-known tax relief often missed by companies that hold a qualifying patent or exclusive licence is the Patent Box incentive scheme which can be more valuable than R&D Tax Credits if implemented correctly.
What is Patent Box?
The Patent Box scheme is an incentive introduced by the Government in 2013 to develop and commercially exploit UK Intellectual Property. Income covered by the scheme is from the worldwide sale of products that contain a patented component, licensing income, sale of rights and infringement income. Effectively, the Corporation Tax paid on these profits is reduced to 10%, a significant tax saving compared to the current 19% rate of corporation tax.
What are the qualifying criteria?
The regime applies to existing, newly granted or acquired patents but the claiming UK company must have a significant involvement in the development of the patented invention, or a product incorporating the patented item. If your company holds the license to use another’s technology, you can still benefit from Patent Box if you have:
- The right to develop, exploit and defend rights in the patented invention
- One or more rights to the exclusion of all others, including the licensor
- Exclusivity in an entire national territory (but not the right to manufacture or sell in part of a country).
Patent Box vs. R&D Tax Credits
One misunderstanding about Patent Box is how it interacts with R&D Tax Credits. Patent Box is designed to complement the Tax Credits regime and won’t prevent current or future Tax Credit opportunities. One important point to note is to wait until your business is profitable before electing into Patent Box.
How to find out more
The calculations required to claim through the Patent Box regime are relatively complex so it’s essential that you seek professional advice before embarking on this route. Alan Sowden, Technical Director at CRM has a wealth of knowledge in the subject and can help you get to grips with both R&D Tax Credits and Patent Box.
Please get in touch with Alan Sowden at CRM if you would like to examine the possibility of registering a Patent and taking advantage of the significant tax benefits of the Patent Box. Call CRM on 01865 379272 or visit www.crmoxford.co.uk