“Innovation” is a buzz word that everyone loves to use, but for some businesses innovation really is the life blood of the company. Innovation or Research and Development (R&D) leads to improved or new marketable products and/or services which distinguish companies from their competitors. But more than that, genuine innovation brings with it a raft of tax advantages, which might make the difference between being an average company and a brilliant company.
Innovation & Tax relief
It starts with R&D tax credits, which are a form of corporation tax relief applied to revenue expenditure related to your R&D activities. Thus not only do you stand to gain from the fruits of your research, but the government will significantly reduce the amount you stand to lose by effectively subsidising your development projects. To qualify as R&D, a project must “seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”. What this means is that projects to develop new business products or services must incorporate some advance in science or technology to be eligible. If you are working on something that is technically feasible, but it isn’t obvious to a qualified person how to do it, then you will be able to reclaim the expenditure in R&D tax credits.
This is very similar to the requirement for novelty and inventive step in patenting, making the legal protection of work qualifying for R&D tax credits a natural next step. The good news is that there is another form of tax relief specifically for patented inventions that can entirely offset the cost of patenting, this is the so-called ‘Patent Box’.
By using the Patent Box you can nearly cut your corporation tax in half. The Patent Box allows you to reduce the corporation tax paid on any profit derived from intellectual property your company owns or exclusively licenses. This includes sale of patented products or products including patented components; sale of rights; sale of services using patented methods or tools and income from damages or insurance pay-outs due to infringement. The caveat is that your company has to have done qualifying development on the patented invention. What this means is that you must be able to substantiate a claim to have significantly contributed to the creation or development of the invention. By combining the patent box with R&D tax credits you can dramatically reduce the cost of bringing a new product or service to the market.
Of course the benefits of innovation are by no means limited to tax relief. Companies that develop and patent their own products can also benefit from a huge boost to their brand by registering trademarks on the products and services they provide. Building a strong brand on tangible products and services that your competitors cannot offer is a sure-fire way to build a loyal customer base without relying on marketing gimmicks.
To summarise, while we do live in uncertain times, these generous tax relief programs mean that there has never been a better time to invest in innovation and turn uncertainty into opportunity.