How is the tax relief landscape shaping up for 2024?

Jonathan Scott discusses the latest Patent Box and R&D tax relief statistics, and what they mean for claimants now, and in the years to come.

The tax relief landscape is changing. This year we’ve seen tax rates rise and the implementation of new regulations and rules. And now HMRC have released the most up-to-date tax relief statistics, giving an insight into the bigger picture.

With more changes to come what do the latest figures mean for current and future claimants?

R&D tax relief is still on the rise

The number of R&D claimants continues to rise, with a 5% increase on last year and the value of each claim increasing too.

The tax relief has been a saving grace for innovative business owners across the UK for decades now. So, it’s great to see that eligible businesses are receiving the support they deserve. Especially when it comes to smaller businesses, which are the lifeblood of our economy.

What does the future of R&D look like?

Even though the number of claims has risen this year it’s likely to dip going forward. And we’ve already seen the number of first-time claimants drop for the second consecutive year.

With all the noise surrounding fraudulent R&D claims and the announcement of changes to the regime, many eligible business owners could have been deterred from submitting a claim. With the rate of relief for SMEs having fallen, we can expect these numbers to decrease further in the next few years.

With the Autumn Budget only weeks away, hopefully we will see more support for smaller businesses. But in the meantime, what should business owners consider?

Could patent box offer a saving grace?

The benefit of R&D tax relief will decrease in the years to come. You need to start looking at ways in which you can compensate for the cash flow deficit.

In contrast to R&D, the value of patent box tax relief will increase in the years to come. The increase in corporation tax (CT) rates mean that the value of each patent box claim has substantially increased. This is because the difference between the rate of patent box (at 10%) and the CT rate of 25% is much larger.

What is patent box?

If you hold a patent in the UK, or you’re applying for one, you could be eligible for patent box tax relief. The relief allows you to claim an effective tax rate of 10% on IP-generated profit. Which is more than half of the UK corporation tax rate.

If you don’t already hold a patent, now might be the time to consider looking into doing so. It’s simpler than you may expect with an average application costing £6,000. For many businesses this is an investment rather than a cost.

The two main requirements are:

• Your invention needs to be new. It can’t be a version of something that exists already.

• Your invention needs to be new knowledge. This means that no knowledge used in your invention should exist in the public domain.
Even if your application hasn’t been finalised, you can still begin to reap the rewards available with patent box while you’re waiting.

So why do the patent box numbers continue to dwindle?

It’s disappointing to see that the number of companies who have elected into patent box have decreased this year. That's the first time this has happened since the relief's implementation.

Whether it’s due to a lack of awareness, fewer businesses commercialising their IP, the two-year lull before patents are actually granted or because business profits dipped during the pandemic, the reasons why patent box uptake continues to lag behind are multifaceted.

On the ground, we’re seeing a different picture. More businesses from different industries are starting the claim process.

But the long-winded, technical and complex process of submission could be one of the reasons why patent box hasn’t boomed.

How to submit a patent box claim

Claiming patent box can be a lengthy process.

It involves assessing your existing and future intellectual property and patentable products, and then documenting technical information. You’ll then have to delve into forensic accounting to identify any income streams and costs before making the actual election.

When you’re juggling the day-to-day running of your business this process can be very off-putting. So many owner managers choose to opt for other options to plug the cash flow gap and drive growth. Meaning that they are missing out on invaluable relief.

This is where a trusted advisor can help.

Speaking with an expert

Whether it’s patent box, R&D or a combination of the reliefs, consulting a qualified tax advisor can lessen the burden of claiming. They can ensure that you are making the most of the relief whilst remaining compliant.
While the legislative and economic landscapes continue change and evolve, the value of having an expert by your side shouldn’t be underestimated.

Our team of industry-experts and qualified tax advisors are on hand to support you, no matter where you are in your journey towards submitting a claim. Please feel free to get in touch.