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 21.5%* 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. |
*For periods up to 31 March 2023, the previous rates still apply. This means an effective CT saving of 24.7% instead of 21.5% for SMEs.
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?
-
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.
-
Were this new product to also contain patented technology, the organisation would be able to make further tax savings on profits derived from it.
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.
Darryl Hoy
Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector.
View my articles
