Encouraging Innovation: Government Schemes

The British Government has introduced a variety of schemes in order to encourage and enable innovation. Some of these schemes are specific to SMEs, whilst others are applicable to companies both large and small. This article contains a brief overview of some of these schemes.

Patent Box

The Patent Box scheme was introduced in April 2013, and works by allowing companies to apply for a lower rate of Corporation Tax on profits derived from a patented product. The lower tax rate applied is 10%, which is a significant saving from the standard 20%.

In order to partake in the scheme, a company must either own, or be an exclusive licensee of, a qualifying patent. In order to qualify, the patent itself must have been granted by one of the following national or regional offices:

  • UK Intellectual Property Office,
  • European Patent Office,
  • Austria,
  • Bulgaria,
  • Czech Republic,
  • Denmark,
  • Estonia,
  • Finland,
  • Germany,
  • Hungary,
  • Poland,
  • Portugal,
  • Romania,
  • Slovakia, or
  • Sweden

If you believe that you may be eligible, more information about the Patent Box can be found on the government website – https://www.gov.uk/guidance/corporation-tax-the-patent-box, or by contacting HMRC.

R&D Tax Credit Scheme

The British Government also offers a “tax credit scheme” which is applicable to R&D based projects. There is a different procedure to be followed by SMEs and larger companies, but these are not discussed in this article.

To qualify, the R&D project must seek an “advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty”. Furthermore, the R&D should pertain to the company’s trade only. This does not have to be an existing company, a subsidiary or a spin-off company created as a result of the R&D may also be eligible for tax relief.

The terminology used in determining whether a company qualifies for R&D tax relief is specific. The government provides definitions, which may be found through the following link: https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird81900

Even if a project meets the requirements for the tax credit scheme, it is worth noting that not all costs incurred through R&D are eligible for tax relief. Generally, the normal running costs of a company would qualify, whereas the purchase of assets would not. Examples of costs eligible for tax relief are as follows: employee costs, staff providers, materials, utilities, software and sub-contracted R&D.

R&D tax relief should be claimed within two years of the end of the relevant corporation tax period, and is applied for on the corporation tax return. More information can be found on the government website at the following link: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

Innovate UK

Innovate UK is an organisation with the aim of helping to foster development in the UK. In the past 10 years, almost £2 billion has been awarded to over 7,000 organisations. It is estimated that over 55,000 jobs have been created as a result of this investment.

Innovate UK seek to identify which technological areas will help provide economic growth. This is achieved by meeting with inventors/companies and helping to provide funding for the projects which show potential technological value. Innovate UK also helps by matching innovators with potential inventors.

More information about Innovate UK may be found at the following website: https://www.gov.uk/government/organisations/innovate-uk

The Enterprise Europe Network

The Enterprise Europe Network (EEN) is fairly similar to Innovate UK. As a networking group, EEN seeks to help innovators obtain funding for their projects. Help is also available in identifying new markets, promoting innovative products, sourcing new technology and much more. The EEN provides business advice (particularly helpful for smaller ventures) as well as networking events etc. More information about the EEN may be found at the following website: http://www.enterprise-europe.co.uk/

If you have any questions about this post, or Intellectual Property in general, please do not hesitate to contact the office.

Nigel Brooks CPA


01730 823 647