Can I Claim R&D Tax Relief and the Patent Box?

Innovation has become the key driver for a business’s success and sustainability, and to foster innovation, governments around the world have implemented various policies and incentives. HMRC’s Research and Development (R&D) and Patent Box regimes are two such examples. Whilst HMRC’s R&D tax relief scheme incentivises companies to invest in R&D activities, the Patent Box regime aims to reward companies for their intellectual property (IP) assets.

In this blog post, we explore how the integration of R&D and Patent Box tax relief regimes can stimulate your business innovation and provide you with a competitive edge.

How Do R&D Tax Credits and Patent Box Work in Synergy?

The R&D and Patent Box regimes work together to incentivise – and drive – a company’s innovation. When these two regimes collaborate, they can create a powerful environment that motivates companies to fully embrace and benefit from the innovation lifecycle.

What Is the Role of R&D Tax Relief in the Innovation Lifecycle?

The R&D tax relief scheme plays a crucial role in encouraging companies to invest in innovative activities. By making a claim under this regime, your business can receive a tax credit to offset the costs associated with your R&D projects. This, in turn, reduces the financial burden and risks of R&D, leaving companies feeling more inclined to allocate resources towards exploring new ideas, developing prototypes, and conducting trials. R&D regimes, therefore, facilitate the early stages of the innovation lifecycle, enabling companies like yours to discover and validate potential breakthroughs.

What Are the Benefits of the Patent Box?

Whilst R&D tax credits stimulate the initial stages of innovation, the Patent Box comes into play when companies successfully commercialise their inventions and generate IP assets. The Patent Box regime provides favourable tax treatment on income derived from patented inventions, allowing companies to retain a larger portion of the profits generated from their patented technologies. In the UK, profits from patents qualify for a lower effective corporation tax rate of 10%.

Patent Box regimes are designed to encourage companies to protect their innovations through patents, fostering a culture of IP creation and management.

What Are the Synergies Between R&D and Patent Box Regimes?

By combining R&D and Patent Box regimes, your company’s entire innovation lifecycle is supported. Although the two schemes are separate, they can be combined and you can claim them together. Here’s how the two forms of tax relief work hand-in-hand:

• Encouraging R&D investment: R&D tax relief incentivises you to invest in research and development activities by reducing the associated costs. This creates a favourable environment for innovation, and encourages the exploration of risk-taking and new ideas.
• Facilitating IP creation: With the R&D tax relief scheme in place, you’re now motivated to develop novel inventions. The Patent Box provides a further incentive by rewarding you for protecting and commercialising your intellectual property through patents.
• Maximising returns on innovation: The integration of R&D and Patent Box regimes ensures that you can benefit from your investments throughout the innovation lifecycle. Reduced tax rates under Patent Box regime enables you to maximise your returns on patented technologies, making it financially viable to further invest in future R&D projects.
• Attracting foreign investment: An effective R&D and Patent Box framework can attract foreign companies looking to establish their operations in a country with a supportive innovation ecosystem. This influx of foreign investment can fuel economic growth, job creation, and knowledge transfer.

Conclusion

To thrive in today’s rapidly evolving business landscape, companies must embrace innovation as a core strategic priority. The integration of R&D and Patent Box regimes can significantly enhance your company’s innovation lifecycle and by harnessing the synergies between R&D tax credits and the Patent Box, your business can unlock its full innovation potential and gain a competitive edge in the global marketplace.

If you have a patent, or are in the process of applying for one, you need to make sure you are maximising the R&D tax relief scheme, too.