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R&D and Patent Box

Research and Development (R&D) and Patent Box tax relief are generous incentives aimed at promoting innovation and economic growth. These incentives provide companies with opportunities to reduce corporate tax liabilities or secure significant cash rebates by engaging in cutting-edge research, development, and patent-related activities.

Benefitting from Innovation: R&D Tax Relief

For small and medium sized companies (“SME”s) with profits there is a “super” tax deduction. Until 1 April 2023 an SME spending £10,000 on eligible R&D could save tax of up to £2,470. This will be substantially reduced after 1 April 2023. Where the extra deduction creates or increases a tax loss it may be possible to surrender the loss and receive a cash repayment instead of up to £3,335 (£1,860 from 1 April 2023) for every £10,000 of qualifying expenditure.

The regime for larger companies is less generous, but nevertheless very worthwhile. Large companies (or members of large groups) can receive a taxable credit of 13% (20% from 1 April 2023) of qualifying expenditure under the R&D Expenditure Credit “RDEC” scheme.

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Autumn Statement 2022 & Spring Budget 2023 Revises R&D Tax Relief

The Autumn Statement of 2022 & Spring Budget 2023 has revised the relief for expenditure on or after 1 April 2023 with the aim of rebalancing the rates between the SME and RDEC schemes. The revised rates mean that the SME scheme becomes less generous, so that £10,000 of qualifying expenditure will save tax in a profitable SME of between £1,634 - £2,150, depending on the corporation tax rate applicable. That same amount spent in a loss-making SME will see a cash repayment of up to £1,860, however certain loss-making SMEs which are R&D intensive will qualify for an enhanced cash repayment of up to £2,697. The RDEC scheme, in turn, becomes more generous with the rate increasing to a 20% taxable credit.

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Patent Box

The patent box regime offers a 10% corporation tax rate on profits generated from UK and/or European patents and could lead to significant tax savings.

Maximising the opportunity to gain benefit from this regime requires some careful consideration including:

Patent ownership requirements – the reduced tax rates may encourage some companies to patent when previously they hadn’t. They need to factor in the time it takes to file a patent application and the time delays before grant of the patent.

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