September 02, 2014


There are currently two very generous tax breaks for companies involved in research and development (R&D) , particularly those that go on to patent their products or inventions. Many such companies may not be claiming all the relief that they are entitled to.

Firstly, R&D tax credit relief provides companies with an enhanced corporation tax deduction of up to 225% for qualifying R&D expenditure. For example, £100,000 qualifying expenditure attracts a tax deduction of £225,000. Qualifying expenditure would include scientists’ and engineers’ salaries involved on the research project.

Many companies involved in R&D are making a loss in the early stages and rather than carry the loss attributable to the enhanced R&D spend forward they are able to claim a repayment from HMRC. The repayment was increased to 14.5% from 1 April 2014, turning the £225,000 loss into a £32,625 refund (32.625% of the qualifying spend).

The second generous tax break is the “Patent Box” which entitles the company to a lower corporation tax rate on profits from the sale, licensing or other receipts from patented products. This lower rate is currently being phased in but will decrease to just 10% from 1 April 2017. In order to qualify for the Patent Box the company must register a UK or European patent over their invention.

Although software development can qualify for R&D tax relief, it does not currently qualify for the Patent Box.

If you would like to discuss whether either of these tax breaks apply to your company, feel free to contact us on 0121 667 3882.


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