R&D and Patent Box

Diagnostax Blog 11: R&D and Patent Box

Can I claim R&D Tax Credits & Patent Box Relief?

If you are claiming R&D Tax Relief and you have invested in patents or other equivalent Intellectual Property, you might be eligible for another cheeky tax relief known as Patent Box Tax Relief. Like R&D Tax Relief, Patent Box Relief is an incentive designed to drive UK companies to innovate, but with the specific intention of retaining Intellectual Property in the UK.  

Read on to find out more about Patent Box Relief and how it interacts with your R&D Tax Relief claim.

WHAT IS PATENT BOX TAX RELIEF?

You may be able to make a Patent Box Relief claim if you own:

  • patents that are making your business a profit, or,
  • profitable, unpatented intellectual property which you could patent.

If you are doing one of the above activities, you may be able to make a Patent Box Tax Relief claim that could reduce your business corporation tax to 10%.

AM I ELIGIBLE TO CLAIM PATENT BOX?

To be eligible to claim, you must:

  • be a UK Limited company paying UK corporation tax, and,
  • have developed an innovative product or process, filed a patent application, and made profits that are related to the patent.

When you hear patent, you might automatically think of groundbreaking inventions but it’s doesn’t have to be this complex. Patented inventions can be as a result of a relatively small technical improvement to a product or process.

If you are put off by the prospect of a difficult, expensive process to apply for a patent, well the Patent Box Relief should provide the silver lining. For it’s not just UK profits that qualify for the relief. An amazing 100% of the company’s worldwide profits resulted from that patented product or process, could qualify for a reduction to 10% corporation tax. From 1st April 2023 that’s up to a 15% saving! Similar to R&D Tax Relief, Patent Box claims must be made before two years AFTER the end of the accounting year in which the relevant profits and income were made.  

CAN YOU USE BOTH R&D TAX RELIEF & PATENT BOX SCHEMES?

The short answer is yes. You might have thought that because the activity is all focused on innovation that there might be exemptions around being able to claim both. Wrong. The two schemes are separate but they can be combined, which is great news!

Companies can benefit from 10% corporation tax for profits related to the patented product or process, whilst claiming up to £25 for every £100 spent on Research and Development. But the savings do interact with each other. R&D tax relief reduces your profits subject to corporation tax, whilst patent box applies a 10% tax rate on profits after applying R&D tax relief and the patent box calculations.

If you’re actively involved in patents, alongside your R&D activity you need to make sure you are maximizing both schemes.  


Let’s take a look at an example..

A cosmetic dentistry business made £800k profit for the accounting period ending 31st July 2021. They expect to pay £152k in corporation tax.

They own a patent for cosmetic dentistry which was granted for the UK in September 2020. They made £100k profit from the patent.

The business also undertook Research and Development (R&D) in respect of prototyping the product which cost them £100k in this accounting period.

Firstly, they can claim an additional £130k deduction from their profits due to the R&D activities which reduces their profits subject to tax, down to £670k. This saves them £24,700.

Secondly with a patent box election, the £100k patent profits are taxed at 10% instead of 19%. This saves them £9k.

By making these claims, it means the company will now pay £118,300 in tax, resulting in a total saving of £33,700.

ELIGIBLE FOR R&D & PATENT BOX RELIEF?

If you think you might qualify for Patent Box Relief, get in touch and we will help make sure you maximise your claims across both schemes. Book a scoping call to discuss your claims.

R&D Blogs for you

R&D Blogs all of the advice and guidance you need in one place to better understand research and development.

It’s time to put your front foot forward…manage risk…educate…raise awareness…
create opportunity and protect yourself.

And we’ve done the leg work for you.

R&D in one place

R&D Blogs all of the advice and guidance you need in one place to better understand research and development.

It’s time to put your front foot forward…manage risk…educate…raise awareness…
create opportunity and protect yourself.

And we’ve done the leg work for you.

Diagnostax: R&D Blogs for you

R&D Blogs all of the advice and guidance you need in one place to better understand research and development.

It’s time to put your front foot forward…manage risk…educate…raise awareness…
create opportunity and protect yourself.

And we’ve done the leg work for you.

Secret R&D

Diagnostax Blog 12: Secret R&D

Are you sat on secret R&D?

Even though you already claim R&D Tax Credits, there’s every possibility your company could be sat on ‘secret’ R&D. But what do we mean by ‘secret’ R&D? Well, we often come across clients that have developed or built a product, process or service specifically for themselves without recognising that what they are doing is research and development. They are so focused on just ‘doing’ the work they do, they don’t recognise the steps they are taking. It’s only when you start thinking in a certain way that you begin to recognise that you are sat on products, service and processes that you could claim R&D Tax Relief for.

With that in mind, we want to share some examples, to give you an idea of the types of activity and situations in which secret R&D occurs.

ARE YOU SAT ON SECRET R&D?

Secret R&D can manifest in many different ways, through things like:

  • Investing in technology and bespoke integration to improve efficiency
  • Developing specialist software to resolve inefficiencies in business processes
  • Developing new products to improve service delivery
  • Developing an existing service to improve customer experience
  • Developing new systems to improve business processes

Here’s five real life examples of businesses that had been sat on secret R&D..

Are you sat on secret R&D?

Business: SAAS Technology solutions
Secret R&D:
Business as Usual
R&D Tax Refund:
£7.5K

Working with clients to deliver bespoke technology business solutions for a wide range of industries and business scenarios, this company delivers R&D qualifying projects pretty much every day. The business was so involved in the day-to-day, they didn’t recognise that they were delivering research and development, daily. The company had also invested significant resource into the development of their own technology solution, just seeing it as an internal project needed to improve their efficiency.

Working with a client they recently developed one of the UK’s most advanced smart metering platforms leading to just over £7.5K of R&D tax credits.

Business: E-commerce
Secret R&D:
Resolving Inefficiency
R&D Tax Refund:
£6K

Anecommerce business specialising in sports accessories, developed a specialist shipping integration software to improve inefficiencies in their business processes.Working with a subcontractor, they modified a program to make it more efficient for use within their business. Significant improvements were made to the software program to integrate the software into their systems, and the internal R&D project generated a claim worth £6k over a two year period.

Although the business set out to resolve inefficiencies in their business process, they were too involved in the project to recognise their own work to be innovative.

Business: Scaffolding contractors
Secret R&D:
Save Time & Money
R&D Tax Refund:
£22K
These guys are experts in scaffolding, specialising in the provision of scaffolding installations to a wide range of industries.They had invested in the development of a free-standing scaffolding structure to be used for internal scaffolding, primarily to save their time and cost when setting up jobs.

The company was clueless that what they had set out to do was an R&D project. They just wanted to save themselves time and money! However, in the process they developed a new innovative scaffolding product applicable industry wide and acquired a corporation tax repayment of over £22K for a two year period.

Business: Gastropub & Hotel
Secret R&D: Improve customer experience
R&D Tax Refund: £7K

A Gastropub and Hotel based in the North of England, wanted to provide a menu that catered for all tastes and needs, as they wanted everyone to find something really good on the menu. They knew it didn’t make economic sense to have a dozen different menus, so they worked on a new menu to cater for all dietary requirements.

The gastropub developed an innovative menu that could be produced to cater for vegan and gluten free diets, without compromising on the customer experience.

The owner was convinced there wouldn’t be a claim because it’s just ‘what they do’ but when he reflected on all the hard work that goes into crafting their menus he was able to see the numerous research and development steps in their work.

This work realised an R&D Tax claim of £7k for the gastropub.

Business: Fashion & Apparel
Secret R&D: Sales toolR&D
Tax Refund: £15K

A women’s clothing manufacturer and retailer, developed a unique sports clothing range for pregnant women which they understood would qualify for an R&D claim. However, alongside this they delivered a complex website project which included the development of a global directory of maternity fitness instructors. Developed as a sales tool, the business was completely unaware that they had built something completely new and innovative.

Altogether the R&D projects equalled a total benefit of just over £15K.

Ensuring you identify all the R&D in your business requires a mindset change, and cultural shift to make it work business wide. You have to change the way you think about what you are doing day-to-day. Encourage your employees to constantly challenge the way they – and others – do things, to make suggestions for improvements and bring forward new ideas.

You could be sat on secret R&D gold.


THINK YOU MIGHT BE ELIGIBLE TO CLAIM?

If you think you might be eligible for R&D Tax Relief, and you’d like to find out more about how we can help you make your R&D claim, please book a call.

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