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Patent Tax Breaks And R&D Grants

by | Aug 29, 2013

Patent Tax Breaks And R&D Grants

Obtaining a patent can be fairly costly, and for SMEs, this cost can make a big difference when applying for patent protection. However, the 2011 Budget has announced that it will be introducing a significant increase in tax relief for innovative small and medium-sized enterprises, something which will come as a welcome incentive for those wishing to develop and protect their ideas.

As of 1st April 2011, tax relief for Research and Development (R&D) expenditure will rise to 200% (at present, it is at 175%). Therefore, for every £100 spent on Research and Development, companies will be able to claim tax relief of £200, which effectively cuts their total expenditure by 20%. This is to go up by another 5% in 12 months time.

The incentives are available to both SMEs and large companies, with tax relief for large companies undertaking R&D projects currently at 130%.

What are the requirements to qualify for the R&D tax Relief?

  • According to Government guidelines, a Research & Development project is one which “seeks to achieve an advance in overall knowledge or capability in a field of science or technology uncertainty – and not simply an advance in its own state of knowledge or capability…activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D. Certain qualifying indirect activities related to the project are also R&D”.
  • The scheme does not include business products or services with no advance in science or technology – commercial innovation alone is not enough.
  • You file the request for the tax relief in your Company Tax Return with full details of your project.
  • You must be spending at least £10,000 a year on R&D costs. This minimum requirement will be removed from 1 April 2012. The total amount of aid you can receive on any one R&D project is €7.5 million.

What does the R&D tax Relief cover?

The tax relief covers revenue expenditure, e.g. employee costs for staff and/or subcontractors actively engaged in carrying out the research and development, materials, software and utilities.

Obtaining a grant for Research and Development

In a further effort to encourage innovation, novelty and industrial development, the Technology Strategy Board is to relaunch the Grant for R&D (Your Business Link advisor can advise you of the grants available). Three types of grant will be made available from 4 April 2011 for all SMEs with the exception of the defence sector, and cover proof of market, proof of concept and prototype development respectively.

The tax relief measures must first be approved by the European Union, however once these developments are put into place, they will provide great encouragement to small and medium-sized innovative businesses. This means more money in your pocket.