Research and development tax credits – can your business benefit?

Like many rural business sectors, climate anomalies, labour security and cost, input security and cost, are providing a focus and accelerating investment in mitigation measures. From a myriad of robotic solutions to AI analysis of drone captured data, to development of new varieties and many more.

There are very generous tax incentives available, both to encourage companies to invest in R&D and support those companies already investing in R&D – R&D tax credits and the Patent Box.

If you are not already taking advantage of these tax incentives, you might want to investigate whether they are available to your business.

R&D tax credits

Innovative companies can use R&D tax credits to significantly reduce their corporation tax bills, or even receive a payment directly in cash. Where a company has undertaken a qualifying R&D project, they can obtain additional tax relief on certain categories of expenditure, including staffing costs and the cost of materials consumed in R&D (among others).

The tax benefit to a company varies, dependent on the company’s size and profitability, ranging from a corporation tax saving of 24.7p for every £1 spent, to a tax credit worth 33.4p for every £1 spent, to a tax credit worth 9.4p for every £1 spent.

R&D tax credit reforms

There have been many consultations and attempts to reform R&D tax credits in recent years, to try and make sure they are effectively targeted. R&D expenditure in the UK is half of the OECD average, but the UK spends more than many other countries on R&D tax relief.

A key target of these reforms is R&D which is undertaken overseas on behalf of UK companies. Whilst relief may now be available for the cost of overseas subcontractors or workers, it is anticipated that this will no longer be the case from April 2023 onwards (although the details are yet to be finalised).

On a more positive note, the Chancellor is considering making the R&D tax credit scheme for large companies more generous, with details expected in the Autumn budget later this year.

There have also been some moves to modernise R&D tax relief, with relief available for data and cloud computing costs from April 2023 – something we as tax professionals have been requesting for some time!

The Patent Box

Another key R&D incentive is the Patent Box. This is designed to incentivise innovative companies to develop and exploit IP in the UK. It allows companies to effectively apply a lower rate of corporation tax, currently 10%, to profits earned from exploiting certain types of IP (including patents and plant variety rights/plant breeders’ rights).

As a firm we do prepare a number of valuable Patent Box claims for companies exploiting plant variety rights – although we suspect that not every company that could qualify makes a claim. If you do hold plant variety rights or plant breeders’ rights (or even patents) a Patent Box claim may be worth considering.

How we can help

Like so many aspects of business, early advice can mitigate costs and ensure tax reliefs are optimised. This text represents a simplified commentary of two very technical areas and specialist advice should be taken at the earliest opportunity.

We have a team of specialist tax advisors available to help you and your business.

Contact Seonad MacLeod our Corporate Tax Manager or call us on 0330 124 1399.