R&D Tax Relief and Patent Box

Historically Research & Development tax relief has been one of the most generous forms of tax relief available, with profitable SME companies previously able to make tax savings worth almost 25% of the amount spent on R&D tax activities and loss-making companies able to claim a payable tax credit of just over 33% of the amount spent. From 1 April 2023, the value of claims is reducing for SMEs and over the last year or so, there has been a significant increase in compliance activity from HMRC. This means that now, more than ever, it is vital that a claim for R&D tax relief is accurate and robust.

At BHP, we are committed to helping you through the R&D process, and as part of our ethos, we promise to listen, understand, and provide honest advice to determine whether you can claim R&D tax relief.

Support for your R&D and Patent Box tax claims

Listen

A key part of our role at BHP is to listen to you. We’re interested in what your business does and how it does it. This conversation might take us into the area of R&D, but it might equally take us somewhere else. We’re not here to tell you that just because you are a software company or a manufacturing company that you must be eligible for R&D relief – it’s not that simple.

You may have heard that R&D claims don’t have to involve ‘blue-sky’ thinking, cutting-edge technology or scientists in white lab coats, and while there is some truth in that, it doesn’t automatically mean that any claim for an improvement or refinement can be made. Claims can be made for modifying existing products, processes or systems, and the guidance applies equally to all sectors. Still, the key test is that the work being done must represent an advance on the existing baseline science or technology.

Understand

We understand the legislation and guidance around R&D tax claims, but it is equally important to understand your business. We know from experience that some clients have preconceptions that they can’t be doing R&D because of the type of industry they are in or that overcoming challenges and uncertainties is just part of the job. This might be true, but we need to understand the facts of your business and determine objectively whether the activity is enough to meet the criteria for a tax relief claim.

Over the years, we have submitted hundreds of R&D claims. Still, we know the importance of keeping up-to-date with the industry’s latest regulatory developments and do not take our position as trusted advisors for granted. From 1 April 2023, there are significant changes to what costs can (and cannot) be included in a claim. There are new requirements to notify HMRC that you intend to make a claim, and the nature of the information provided to HMRC to support any claim is now much more tightly defined. It might sound like making a claim is too onerous or risky, but we understand the process and will guide you through it.

Provide Honest Advice

A consequence of our approach is that we will tell you when we think you do not meet the criteria to support a valid Research & Development (‘R&D’) tax relief claim. Saying ‘no’ might seem like an odd way to advertise our R&D services, but it is important to know from the outset that companies are not automatically entitled to this relief – even if you have claimed it before. Of course, if we think you meet the qualifying criteria, we will support your claim throughout the process and ensure that it includes everything you are entitled to.

What next?

After a period of relative stability, the R&D market is in a period of flux, with the rules, rates and requirements all changing within a short period. At BHP, we are happy to discuss the impact these changes may have on you and your claim.

Patent Box

Another valuable tax relief in this area is the “Patent Box”, which allows relevant profits to be taxed at 10% instead of the main rate of Corporation Tax (up to 25% from 1 April 2023).

Although it might be straightforward to establish whether a company has a qualifying Patent or Intellectual Property right, the challenge here is determining what counts as relevant profits for the purposes of the calculation.

If your company holds a Patent, is considering applying for a Patent or has an Exclusive Licence to exploit a Patent, contact one of our Patent Box experts or your usual BHP contact to learn more. Where a company owns a Patent, the company is also likely to be undertaking Research & Development and may be able to claim valuable Research & Development Tax Credits.

For more information, give us a call on 0333 123 7171.