Maximising R&D tax relief: how Patent Box can elevate your innovation strategy

Did you know that you can take your R&D tax relief to the next level by optimising the Patent Box scheme if you meet certain eligibility criteria? Discover how to enhance your innovation strategy, increase cashflow and boost your business’s growth.  

Understanding R&D and Patent Box tax relief

If you are pioneering in your field, there are good options for potential tax relief available. In order to benefit from these schemes, it’s crucial to have a thorough understanding of which ones your business is eligible for, what they are and how you can efficiently utilise them.  

We’ll be exploring what R&D and Patent Box tax relief are, how they work and best practices on how to optimise them within your innovation strategy.  

What is R&D tax relief?

R&D stands for research and development, which is precisely what the tax relief rewards. R&D tax relief incentivises companies to undertake valuable research and development in their respective fields: rewarding this with reductions in corporation tax based on qualifying expenditure on qualifying activities.  

If no corporation tax is due (because no profits were made), it can also be put towards other taxes due (like VAT), or eventually paid as a cash sum.  

R&D relief can be claimed by companies of any size, regardless of whether the business is turning a profit or making a loss. The most important factor is if the research is innovative to an industry.  

Unsure whether your business qualifies for R&D tax relief? Try our eligibility test here, or book a free consultation with our team.  

What is Patent Box tax relief?

Patent Box tax relief is a scheme that reduces the corporation tax earned from patented products and processes to approximately 10%. The Patent Box tax relief incentivises innovation and investment: encouraging companies to develop, commercialise and protect new inventions.

Businesses of any size can receive Patent Box tax credits, providing they:

• Are liable for UK corporation tax
• Have exclusive licence for a granted UK or European patent or hold an active qualifying IP right (e.g. patent)
• Performed development activities (R&D)
• Generate profitable income through use of patented inventions

Read more about patent box legislation here.  

The synergy between R&D tax relief and Patent Box

R&D Tax Relief and the Patent Box tax regime aren’t mutually exclusive. In fact, the schemes complement each other very well.  

The UK government uses both schemes to incentivise innovation throughout the cycle of invention. Whilst R&D tax relief rewards the research process, the Patent Box incentive celebrates the final product.

Many business owners claiming R&D tax relief are unaware that they may also qualify to claim under the Patent Box regime. Alternatively, a company at the end of their innovation journey seeking Patent Box could also receive a direct R&D Relief reimbursement for their prior research – you can claim retrospectively over your previous two accounting periods.

Complementary benefits of R&D and Patent Box relief

There are numerous benefits for businesses that claim R&D tax credits and Patent Box relief together. This synergy provides an increase in earnings from a project’s start to finish, helping drive progress throughout.

Financial efficiency

The most immediate benefit of these schemes is improved financial efficiency, with R&D tax relief potentially increasing your cashflow. When used together, the two schemes can provide financial advantages at different stages of the innovation cycle. For example, R&D tax relief can result in cash refunds or credits for money invested in qualifying R&D, while the Patent Box offers an enhanced deduction that reduces your corporation tax bill on qualifying profits. These benefits free up resources that can be reinvested across your business to drive further improvements.

Competitive edge

Engaging with R&D, patents and the associated tax reliefs can provide your company with a competitive advantage. They prove that your business offers unique innovation that sets you apart from competitors.  

Raise your reputation

Both schemes demonstrate a commitment towards progress and innovation. This can heighten your company image, increasing desirability to potential clients or investors.  

Recruitment and retention

Highly skilled, talented staff are attracted to innovative companies – increasing the strength of your team. By the same measure, your current staff may feel motivated and remain engaged in the creation process.  

Maximising tax savings for your innovative business

It’s important to consider the ways that you can maximise savings for your business with R&D and Patent Box relief.  

For example, the reduced Patent Box tax rate doesn’t just apply to direct profits from a patented item, but also sales of products using the patented technology, licensing royalties, and even infringement compensation.  

It’s worth noting that Patent Box isn’t restricted by other companies using your patented designs either. You can still use Patent Box if your company has rights to develop, exploit and defend rights of your patented invention, has at least one right to the exclusion of all other persons, and retains exclusivity throughout an entire national territory as a minimum.  

Implementing a comprehensive innovation strategy for Patent Box  

Before pursuing a patent, establish a clear strategy to align your business on innovation and development.

Key components of a strong innovation strategy include a clear vision, well-designed goals, and strong market research and analysis. This should be implemented across all levels of your business.  

Factor into this strategy your use of tax reliefs at the different stages – R&D tax credits early on, and Patent Box once your product comes to market. Don’t forget, too, R&D grants which offer further financial support. You can read more about R&D grants here.  

Aligning R&D activities with Patent Box eligibility

To effectively align R&D activities with Patent Box eligibility, it’s important to consider tax relief at all stages of the process. There’s no one method to effectively align and optimise tax reliefs,  it will vary from business to business.  

R&D tax relief will come before Patent Box. But one of the advantages of claiming R&D tax credits is that the record keeping you will undertake will stand you in good stead for attributing Patent Box eligibility to your prior R&D. We can help you with this.

At Kene, we offer a comprehensive assessment that analyses your patents to identify all eligible profits and ensure that you’ll get the full amount you’re entitled to.  

Strategic patent filing and management

Before considering patenting an invention, your business should have a strong patent strategy in place. A quality patent strategy will not just consider the filing process, but the ongoing management and commitment required throughout a patent’s lifespan.  

Patent filing involves submitting a patent application to the relevant patent office, which will be granted if it meets the necessary criteria.  

Patent management is an ongoing process throughout a patent’s existence. Patent management involves monitoring for potential infringements, responding to infringement claims, managing patent portfolios, continuing to pay annual patent fees and enforcing patents through litigation if necessary.  

Managing patents can be complex but leveraging the Patent Box where applicable allows you to gain additional value from the resources invested in maintaining and protecting your patents.  

Key considerations for maximising Patent Box benefits

As with any tax relief scheme, you’ll want to be able to maximise Patent Box and R&D tax credits in order to benefit as much as possible whilst making sure everything is running smoothly.

To maximise Patent Box benefits, it’s crucial to ensure your business is accurately meeting compliance. Your claims need to be accurate, clear, and compliant with HMRC guidelines to reduce the risk of any challenges or penalties.

We can help you with Patent Box

It’s clear that R&D tax credits and Patent Box tax relief can boost your business and alleviate financial pressures; but we understand that it can be both hard to find the time to effectively manage these reliefs to their full potential, and also to have the necessary expertise to optimise your position and submit claims correctly.  

At Kene, we’re here to provide your business with ongoing support to maximise your Patent Box benefits year after year.  Our team blends chartered tax advisers and industry experts so that we have all angles covered for you.

Our compliance assurance service ensures that your claims are accurate and ready to reap all the potential benefits of these schemes. We’ll also defend and support your claim if it goes to enquiry. Get in touch today to see how we can help elevate your business through R&D funding.

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