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Research tax breaks to boost innovation

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More details have been released on proposed changes to some of the tax reliefs available for firms that invest in research and development, and in new products.

The changes come as part of Government plans to make the UK’s business tax system more competitive and dynamic, and to add to the attractions of starting and financing enterprises here.

Under the proposals, first announced in the Budget, the R&D tax credit system is to be simplified. One change would see the credits extended so that they cover the costs of more contract workers.

Also on the agenda is a pilot that will allow small companies and start-ups to find out what projects will qualify for the credits at an early stage in their development in order to make planning easier.

As a result of a previous consultation, held last year, on the question of R&D tax credits, the new document identifies two main areas where changes could be made: an increase in the rate of relief and a switch to an ‘above the line’ credit.

An ‘above the line’ credit system would mean that, instead of the current superdeduction method, the R&D tax relief would cut a company’s final tax liability rather than its taxable profits. 

Another innovation is the Patent Box. As from April 2013, the scheme will mean a corporation tax charge of just 10 per cent on profits that stem from patents.

The latest consultation document provides more information about which patents and associated intellectual property types and about what income will be eligible.

It is hoped that the Patent Box will provide an incentive for companies in the UK to take existing patents to the market and to develop new innovative patented products, so boosting the country’s reputation as a world leader in new technologies.

Originally, the Patent Box rules were to have applied to patents commercialised after 29 November 2010. But the new arrangements mean that the tax breaks will apply to all active patents, although the benefits will be introduced over a five-year period.

David Gauke, Exchequer Secretary to the Treasury, said: “This Government is committed to putting in place the most competitive tax system in the G20 and we particularly want to make the UK an attractive location for innovative industries.

“The Patent Box and R&D credits help us create the best possible environment for this. We welcome responses to both of these consultations from industry and from tax professionals.”

The Patent Box consultation document can be found at:

The R&D tax credits consultation document can be found at: