Michael Jaeger, partner and patent attorney at European intellectual property firm, Withers & Rogers
The Government’s focus on investing in driving economic growth will be seen as a boon by the UK’s innovative businesses. In particular, the decision to boost spending on R&D activity in the UK by £22bn and extend the scope of the R&D tax relief scheme to include investments in cloud computing and data costs, will encourage businesses to invest in improvements that will drive UK productivity.
As well as this, the new £1.4bn Global Britain Investment Fund that has been established will help to attract investment from overseas into rich seams of research in sectors such as life sciences and electric vehicle technologies.
A funding increase announced for Innovate UK, which supports the development of early-stage businesses, will further encourage innovation across the country. Since 2007, Innovate UK has invested around £2.5bn to support innovation activity, helped 8,500 organisations create approximately 70,000 jobs, and added an estimated £18bn of value to the UK economy, producing an impressive return of over £7 for every £1 invested.
For businesses looking to make the most of this funding boost for innovation and the tax incentives available, it’s important that they consider using patent protection to support their endeavours. With corporation tax increases due to be introduced in April 2023, and many industries still adjusting to a post-Brexit economy, as well as the impacts of the pandemic, maximising the available tax reliefs is vital.
By filing patent applications, businesses can take advantage of the Government’s Patent Box scheme, as well as R&D tax relief, assuming they meet eligibility criteria. Patent Box was launched by HMRC in 2013, cutting corporation tax from 19% to 10% on profits from the sale of patented technologies1. While corporation tax is set to rise to 25% in about 18 months’ time, the lower rate of 10% will still apply, making it even more important that innovative companies make full use of Patent Box to enhance their cash position.
A single qualifying intellectual property right, such as a UK patent, can be used to reduce corporation tax on all worldwide profits relating to sales of a qualifying item. As a result, this can add up to a considerable reduction in their corporate tax liability. It’s important to bear in mind that when skilfully prepared, patents can be granted for incremental advances in technology, not just major leaps forward.
Failing to claim, or under-claiming, tax reliefs such as Patent Box and R&D tax credits, could mean businesses will miss out on substantial financial savings. Although the total support claimed through these schemes is increasing, not every sector is making the most of the support available. For example, while manufacturing makes up a quarter of R&D tax relief claims, industries such as construction and transportation have barely scratched the surface.
In a similar vein, the recently released Patent Box statistics also show an increase in the number of companies claiming the relief, with numbers rising annually since its introduction in 2013. However, once again it is the manufacturing sector that is taking best advantage, making up over half of the businesses that claimed. Other sectors that may not consider themselves inherently ‘innovative’ need further encouragement from the Government to consider both R&D tax relief and the Patent Box scheme, as they may be surprised at what they can claim for. If numbers in sectors other than manufacturing fail to improve, the Government might need to take a new approach to promoting its Patent Box scheme.
Within the Budget documents themselves, the Government has acknowledged the economic value of patents to regional development, and its ‘levelling up’ agenda. Should this mean greater investment in regional innovation centres in future?
Following the Budget, innovative companies should review their R&D activity and consider how to make best use of the fresh funding and tax reliefs available. In what has been, and continues to be, a challenging period, any financial savings on offer should be grabbed with both hands.
