I attended a networking event this week held by WIBN and was roped in to help out at the ‘finance’ table, I was expecting the usual questions about allowable deductions or raising finance… and there were some but I was surprised by the amount of queries I had about specific tax reliefs such as research and development and the patent box.
Most people may have heard of such things but generally think it does not apply to them or it is too complicated, so they don’t investigate further. But, if you are creating a new product or even updating an existing one, you may be missing out on some significant tax reductions….. its worth finding out about it. The government have been trying to encourage development, creativity and general innovation and these are part of their offering. As tax reliefs go theses are up there with the best.
If you are working on products or processes that can be or will be patented then you should definitely look into this further. With the patent box not just a product but even a component within a product can qualify, and if it does, then all world-wide profits from that product will be taxed at a reduced rate of 10%. This is a tax scheme that you need to elect into, so find out about it.
It is not without issue; there are specific rules re registrations and licensing to be checked, they may need updating, and even if you qualify it can be hard to identify the profit streams from one specific product if you have a reasonably basic accounting or record keeping system……. but unlike some tax schemes the tax savings available here make it worth jumping though the hoops.
This relief works in a different way – rather than reducing the rate you pay tax at, it increases the tax deductions against profit reducing your overall corporation tax charge.
Currently its at 225% (small and medium companies) which effectively gives you a tax deduction of £2.25 for every £1 you spend on qualifying R&D projects. If you are in a loss making situation, you can claim relief by way of a tax credit and actually receive a cash pay out from HMRC.
As with the patent box many companies assume it does not apply to them, but there have been successful claims by companies in non traditional industries, it is not just science or medicine, it can be applied to IT, manufacturing and many more. If your company is spending a lot of money researching, developing and building something then go and see an accountant and ask about the tax reliefs available, for the sake of a 5 minute phone call you could save your company a lot of money!
So go create… then call an accountant!