Blog: Tips for investing in innovation
From saving the planet to boosting productivity, the demand for innovation has never been so important for our long term prosperity. And to help companies who are investing in this type of transformation, there are tax reliefs and allowances available that can offset some of the costs incurred. Below our Head of Accountancy and Tax, Jo Surley, shares just a few.
Research and Development (R&D) Tax Relief
R&D Relief is available to all UK companies who undertake qualifying R&D. If your company is solving a problem or driving significant industry change you may qualify for this important tax relief.
R&D Tax Credits as they are sometimes known can be worth up to 33 pence for every £1 of qualifying expenditure and depending on company size and financial position can result in a corporation tax saving, a tax refundable credit (cash), or a loss which can be carried forward and offset against future taxable profits.
The Patent Box regime was designed to encourage companies to keep their intellectual property (IP) within the UK.
The incentive allows UK companies to apply a lower rate of Corporation Tax (10%) to profits earned from patented inventions and IP.
To qualify a company must be liable to UK corporation tax, make a profit from exploiting patented inventions, own qualifying IP rights, or have undertaken qualifying development on the patent(s).
Capital allowances provide valuable relief on a company’s capital expenditure, with most businesses taking advantage of these.
The types of capital allowances available include Plant and Machinery Allowance (PMA), Annual Investment Allowance (AIA), Research and Development Allowance (RDA), Writing Down Allowance (WDA), and Structures and Buildings Allowance (SBA).
We also shouldn’t forget that the 130% Super Deduction is available until 31 March 2023, as well as a 50% first year allowance for special rate plant and machinery.
Some can be used in conjunction with others, and they all have different rates, limits, qualification criteria and timing restrictions that need to be considered before deciding which should be used, and when.
An asset such as plant and machinery may qualify for PMA, which provides relief at 18%.
Depending on what it is, it may also qualify the 130% Super Deduction, as well as AIA and RDA which give relief at 100%.
AIA, though, has a limit on the amount of relief available whereas other types don’t. So depending on what other capital spend you have, you may wish to claim the Super Deduction or RDA’s against that asset spend instead.
Without good tax and accounting advice decisions on allowance use can be inefficient, and there are certainly companies who qualify for R&D Tax Relief and Patent Box aren’t claiming.
Innovation at the heart
Maximising tax reliefs and innovation incentives is crucial for any forward-thinking technology-led business.
Developing an innovation funding cycle naturally pushes businesses to the next stage of growth; the more research and development you conduct, the more incentives you can access, the more you have to re-invest in the next project and so on.
Regular liaison with your accountant and tax advisor is key to ensuring you’re claiming the right relief, at the right time, at the maximum level year on year.
For more complicated businesses and activities there are also innovation funding specialists like MPA who have sector expertise that can help you access the rewards you deserve and invest them with your business goals in mind.