Innovation isn’t cheap. From research and development of an initial idea, through to IP protection and manufacturing, costs can quickly escalate and put an innovative business in a difficult financial situation. This article explores some of the funding opportunities and financial assistance available for companies that are registered in the UK.
Innovate UK is part of UK Research and Innovation, which is a non-departmental public body funded by a grant-in-aid from the UK government. Innovate UK’s stated aim is to “drive productivity and economic growth by supporting businesses to develop and realise the potential of new ideas, including those from the UK’s world-class research base”.
Innovate UK typically supports UK businesses by running a number of different funding competitions throughout the year, offering grants to innovative companies of all sizes, from start-ups to established companies. Some of these competitions are broad in scope, such as the recent competition for business-led innovation in response to the Covid-19 pandemic. The only catch with Innovate UK funding competitions is that an applicant must be a UK registered business.
Since 2007, Innovate UK has invested over £1.5 billion in innovation. A list of the current funding competitions is available here.
The Patent Box is a tax relief scheme started by the UK government to “encourage companies to keep and commercialise intellectual property in the UK”.
The Patent Box lets companies pay a lower rate of Corporation Tax of 10% on profits derived from qualifying patented inventions. Tax relief under the Patent Box was phased in from 1 April 2013 and the full lower tax rate of 10% has been available to participants since 1 April 2017. This compares to a normal Corporation Tax rate of 19% in the UK.
The UK government introduced the Patent Box in the Finance Act 2012 with the aim to provide an incentive for companies to increase the level of patenting of intellectual property (IP) developed in the UK, and to locate the high-value jobs associated with the development, manufacture and exploitation of patents in the UK. Other countries, such as Belgium, Luxembourg and the Netherlands, already operated similar tax relief schemes.
The value of tax relief claimed under the Patent Box has been increasing year on year. In the 2016-2017 fiscal year, the latest period for complete data, 1,170 UK companies claimed a total of £1.04 billion in corporation tax relief. This total value is expected to increase to around £1.1 billion for 2017-2018.
Research and development (R&D) tax credits are an incentive offered by the UK government to support UK companies that invest in research and development. The scheme is relatively broad and the cost of any R&D work that is “part of a specific project to make an advance in science or technology” can qualify for relief. R&D tax credits are implemented by either reducing a company’s liability to corporation tax or by providing a cash payment to the company.
The SME scheme was introduced in 2000 and it allows UK SMEs to recover a proportion of their costs spent on R&D. The scheme provides different rates depending on whether the company claiming relief is making a profit or a loss. A loss-making UK SME can reclaim up to 33% of their R&D costs in the form of a cash payment, whereas a profit-making SME can reclaim up to 25% of their R&D costs in the form of tax credits against corporation tax. In the 2017-2018 fiscal year, UK SMEs made 42,075 claims for R&D tax credits, with an average relief of around £53,714 per company.
The Research and Development Expenditure Credit (RDEC) scheme, introduced in 2013, provides an alternative route for UK companies to claim relief on their R&D expenditure. Although it is open to all UK companies, the RDEC initiative is primarily aimed at UK companies that don’t qualify for the SME scheme, such as large companies and companies that are not allowed to receive “state aid”. The RDEC scheme can provide a company with a tax reduction or a cash payment of up to 11% (after tax) of their R&D costs. In the 2017-2018 fiscal year, the average RDEC claim was £315,789, but the average RDEC claim made by a large company was £600,977.
If you would like to learn how an effective innovation protection strategy can complement a research and development project, please contact us.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.