Could you benefit from tax incentives for innovation?

research and development innovationsInnovation can be a powerful driving force for businesses, offering opportunities for growth and expansion.  For smaller organisations, taking the decision to invest in the necessary research and development can seem daunting, but the UK government offer a number of financial incentives to encourage investment and promote innovation.

Knowledge Transfer Partnerships

If you don’t have the expertise in-house, or feel you would benefit from some external academic knowledge and experience, you might like to consider a Knowledge Transfer Partnership (KTP).

A KTP is a partnership between your business and an academic institution (such as university, further education college or research and technology organisation), enabling you to access skills and expertise to help your business develop.  A KTP is part-funded by a Government grant with SME’s only expected to contribute about a third of the costs involved in a project.

KTPs can help business to:

  • find innovative solutions for business challenges
  • enhance your competitive advantage
  • expand market opportunities
  • generate a significant increase in profit
  • improve business performance
  • use graduates to accelerate innovation
  • get advice and support from experts

University of Essex Knowledge Transfer Partnerships

For more information visit http://www.ktponline.org.uk/

Enhanced Corporation Tax Relief for Research and Development

Enhanced Corporation Tax relief is available for expenditure on eligible Research and Development (R&D) activities.

For small and medium sized entities this relief can be as much as 225% of their expenditure on R&D, every £1 spent attracts tax relief of £2.25. For larger entities the relief reduces to 130%.

Eligible R&D activities are those that seek to achieve a scientific or technological advance and the qualifying costs include the following:

–          Employee costs relating to the R&D activities
–          Materials used for the purpose of the R&D
–          The cost of utilities used in the R&D activities

For more information visit the HMRC website at http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm

Patent Box

Patent Box allows companies to apply a lower rate of Corporation Tax to profits earned from their patents. The relief is being phased in from April 2013 with the full benefit of 10% Corporation Tax being available from April 2017.

To qualify for Patent Box a company must have been involved with the development of the patent and must own or exclusively license them.

All granted UK and European patents qualify for Patent Box regardless of when they were granted, as well as patents from the following countries in the European Economic Area: Austria, Estonia, Hungary, Romania, Bulgaria, Finland, Poland, Slovakia, Czech Republic, Germany, Portugal, Sweden, Denmark

Qualifying income can arise from a number of sources including:

  • The sale of patented products or a product incorporating a patented invention including the sale of spare parts of such products even if the spare part itself is not patented.
  • Licence fees and royalties from a right granted over the patent.
  • Proceeds from the sale or exclusive licence of the patent.
  • Income received as compensation for patent infringement.
  • A notional royalty where a patented process or patented tool is used to generate profits that would not themselves qualify for the Patent Box relief.

For more information visit the HMRC website at http://www.hmrc.gov.uk/ct/forms-rates/claims/patent-box.htm

Could Patent Box work for you?

Previously companies may have felt that it was not worth the expense of applying for a patent, especially if the product was likely to have a relatively short life span.  With the total cost for securing a UK patent grant likely to be around £3000 to £3500, it may be that Patent Box allows the cost benefit calculations to swing back towards aquiring a patent.

Patent Box also shifts the focus of patent protection away from trying to establish as broad a protection for the product as possible: a more narrow focus can make it easier to get a granted patent while still allowing a company to make a claim using the Patent Box regime.

“Having a granted Patent is a prerequisite for anyone wishing to take advantage of the Patent Box scheme. However, potential users of the scheme need to bear in mind that a patent application must be filed before any public disclosure of the invention takes place. You cannot wait until you are sure you have a commercially successful product before deciding to patent it, in order to get the Patent Box tax breaks. So, SMEs will need to be pro-active in determining at an early stage in product development process, which inventions to patent.”
Jerry Walder – Partner

For more information and advice about how you could take advantage of the Patent Box scheme please contact Sanderson & Co.