Combining R&D Tax Credits with Patent Box

12 October 2021 Tom Whitworth View all News

R&D Tax Credits and Patent Box Tax Relief are two separate incentives, introduced by the UK government to encourage companies to innovate. These incentives are two of the most generous tax breaks currently available to UK businesses.

Despite being unique tax reliefs, Patent Box and R&D Tax Credits can often be combined by innovative companies, providing an exceptional tax saving.

What’s the difference between Patent Box and R&D Tax Credits?

While both are types of tax relief for innovation, Patent Box and R&D Tax Credits are completely different incentives.

Incentive

Effect

Qualifying Criteria

R&D Tax Credits

Savings can take the form of a corporation tax reduction or a cash repayment. Around 25% of qualifying spend on R&D.

Qualifying activities must meet HMRC’s definition of R&D.

Patent Box Tax Relief

Allows companies to pay a lower Corporation Tax rate of 10% on profits derived from patented products or processes.

Patent must be granted by IPO, EPO or National IPO of select EU countries – company must have been involved in patent development.

Even on their own, these incentives present an excellent opportunity for innovative businesses to reduce their liability – but what happens when these are combined by the same company?

Claiming R&D and Patent Box Tax Reliefs simultaneously

We strongly recommend that qualifying companies take advantage of both these incentives if they can – but how does this work exactly?

  1. A company is investing in an innovative new product, one that aimed to achieve an appreciable advance in science or technology in its development – this project may qualify for R&D Tax Relief.

  2. Were this new product to also contain patented technology, the organisation would be able to make further tax savings on profits derived from it.

Let’s look at some numbers, based on real clients the Radius team has worked with:

Examples of combined Patent Box and R&D claims

Student girl in technology fixug computer hard drive

By combining R&D Tax Reliefs with Patent Box, here is how some of our clients were able to reduce their effective Corporation Tax rates

  • A manufacturer of specialist industrial scales was able to reduce their effective Corporation Tax rate to just under 11%
  • An innovative packaging manufacturer reduced their effective Corporation Tax rate to just over 11%.
  • A leading developer of machine-reading features for banknotes were able to reduce their effective Corporation Tax rate to 10%.

How to get started

Your company may also be able to reduce its tax liability considerably – the qualifying criteria is wider than you may think. These reliefs are often underclaimed; this is not because companies do not qualify, but mostly because they do not realise that they qualify.

The Radius team can help you determine the full extent of any claims your company may be entitled to and can offer this as part of a free 30-minute consultation.

If you prefer to do your own research before speaking to someone, you can also download and consult our free R&D Tax Relief eligibility checklist, as well as our free Patent Box Guide.

Tax-Saving Tips for Individuals and businesses

Written especially for entrepreneurs and owner-managed businesses, this guide is full of planning ideas and tax risks to avoid.

If you're looking for ways to reduce your liability, claim your copy and start planning how you could pay less tax.

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