The commercial R&D landscape can be bewildering, as there are complex interactions between funding, intellectual property and commercial strategy.
Tax incentives should not be overlooked as a key element in the planning, and the position can be improved with appropriate liaison between advisers.
Here are a few pointers:
Consider grant funding before the project commences. Most R&D grants require prior approval before the expenditure is incurred, and usually an Independent Accountants Report is required before grant monies are paid.
When considering grant funding for an R&D project, consider also the impact on R&D tax incentives:
- R&D tax incentives CAN be claimed for a project in addition to grant funding. In these circumstances the ‘R&D Expenditure Credits’ scheme applies rather than the more commonplace ‘SME scheme’.
- It is rare, but not impossible, that the loss of SME R&D tax credits outweighs the benefit of the grant funding. This should be checked before you apply for the grant – if grant funding is approved, SME tax credits may be unavailable for that project, even if the grant were paid back.
- The timing of cashflows should be considered; R&D grants are generally received quarterly as the project proceeds, whereas R&D tax credits are claimed through the corporation tax return after the end of the relevant accounting period, when the company accounts have been finalised.
Tax planning should also be considered in the context of protecting and commercialising intellectual property arising from the R&D project:
- Corporation tax on profits can be significantly reduced if the company is eligible for ‘Patent Box’; eligible profits are effectively taxed at just 10% compared to the current standard 19% rate.
- This should be considered at an early stage: it is often difficult/impossible to obtain a patent after the technology has started to be commercialised.
- The purpose of obtaining a patent might just be to access Patent Box tax savings rather than to protect the intellectual property. If so, the approach to drafting the patent application may be different.
- The drafting of the patent application can affect the amount of Patent Box tax savings, so liaison between the tax adviser and the patent attorney is important.
- The business model for exploiting the patented technology, and the corporate structure, can affect the amount of Patent Box tax savings, so specialist tax advice should be sought before commercial legal agreements are drafted.
Services we provided in 2018/19
Grant audits: 24 Independent Accountants Reports complete in support of £6.7m of grant funding.
R&D tax claims giving tax savings of £6.8m.
Patent Box claims and structuring providing tax savings of £1.1m.
For more information on anything mentioned in this article, please contact David Clift on: 01242 680000 or david.clift@hazlewoods.co.uk.