Firms ‘missing out’ on tax breaks

Businesses could be missing out on thousands of pounds by failing to take advantage of tax incentives that encourage innovation, according to a leading tax adviser.

David Bennett, tax partner at Moore and Smalley, believes many businesses are still not aware they can claim significant ‘R&D’ tax relief on new products and processes that are the result of research and development.

Similarly, businesses can also claim tax relief on profits generated through their own patented products under the government’s Patent Box scheme.

David said: “The government introduced these tax reliefs in a bid to encourage and reward investment and innovation by UK businesses. However, there are still many companies out there who are unaware of these incentives or unfamiliar with how they work.

“For example, many businesses assume that what they do isn’t high tech enough to be classed as research and development. But to qualify for R&D tax relief a new innovation doesn’t have to be the result of extensive cutting edge research.

“It can be something as simple as making an improvement to a product so long as it involved resolving a technological uncertainty. Although routine improvements would not be covered, in practice the relief still extends to areas that many people do not initially think of as R&D.”

There are two R&D tax relief schemes available – the large company scheme and the small and medium-sized enterprise (SME) scheme – each with its own rules on the relief available.

For SMEs (including companies with fewer than 500 employees), the tax relief on allowable R&D costs is 225 per cent. This means that for each £100 of qualifying costs, a company could have the income on which Corporation Tax is paid reduced by an additional £125 on top of the £100 spent.

Meanwhile, the Patent Box enables companies to apply a lower rate of Corporation Tax of 10 per cent to profits earned after 1 April 2013 from its patented inventions and certain other innovations.

David added: “On the face of it these tax reliefs are quite complex, but do offer real incentives if businesses are prepared to explore them. Businesses should speak to their professional advisors to ensure they are maximising these opportunities to reduce their tax bill.”