
Patent Box – what you need to know
The current Patent box regime was introduced in April 2013 and many companies have made claims. Patent Box provides effectively a 10% tax rate to reward UK companies that are exploiting patented IP rights.
The UK Government recognises that encouraging innovation is a vital component in a strategy for improving the UK’s productivity, performance and competitiveness. As a result, there has been significant change to the research and development (R&D) regimes to encourage and reward greater innovation in the UK.
Given the significant amount of change to the R&D regimes over recent years, it is important that claimants are assessing the impact of these changes and are adapting their existing R&D claims process to ensure that they are claiming their full entitlement to these valuable incentives.
Our experienced team works with claimants to:
More information on how each R&D credit regime operates, and the recent changes to the regimes, is detailed below.
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The merger of the SME and large company RDEC schemes applies for accounting periods commencing on or after 1 April 2024.
The new R&D regime is broadly aligned with the existing RDEC regime and is designed as an ‘above the line’ credit offering similar cash credit rates as the existing RDEC regime. The key differences to the existing RDEC regime are:
The changes incorporated as part of the merged R&D regime are some of the most significant changes to the R&D regime in recent years so businesses should be considering the impact on their claims as soon as possible.
It is important that companies understand how these changes will impact their R&D claims and wider capital investment decisions going forward. In practice, the changes are likely to have a significant impact on claims and at the same time increase the compliance burden. We can help you consider how the changes may impact the value from your claims and at the same time, how to utilise your wider processes and available data to reduce the time demands of preparing claims.
Working across PwC’s broad range of specialist services we can help you explore all incentives available to you and its impact on your wider tax, financial and commercial activities so you can further enhance and accelerate your business opportunities. We have highly qualified industry professionals with significant experience of R&D and capital incentives in their relevant industries who would be happy to discuss how we can help make sure your incentive processes are optimised.
The R&D tax credit available to small and medium enterprises (SMEs) is a 186% super-deduction with a 10% credit for loss making SMEs, resulting in a cash benefit of c18.6% (reduced from 33% from 1 April 2023) of the qualifying expenditure. This regime only applies to accounting periods ending before 1 April 2024. For accounting periods commencing on or after 1 April 2024, SMEs may be able to claim under Merged R&D Expenditure Credit scheme. Additionally, the SME Enhanced R&D Intensive Support (see below for further information) is available for certain loss making SMEs.
ERIS allows loss-making R&D intensive SMEs to claim 186% super-deduction with a 14.5% payable credit rate (resulting in a c27% cash benefit). The ability to claim under this regime is subject to meeting an R&D intensity condition and having made a trading loss in the period (before ERIS). The R&D intensity condition requires that at least 40% of total expenditure of the company (plus its connected companies) is on R&D expenditure for expenditure incurred on or after 1 April 2023) or 30% (for accounting periods beginning on or after 1 April 2024).
The calculation of the R&D intensity percentage is highly complex and care needs to be taken in making sure the total relevant expenditure (TRE) is calculated accurately (to include all global connected companies TRE) and R&D costs are calculated and allocated appropriately.
For accounting periods starting on or after April 2024 there is no restriction on claiming for subsidised expenditure under ERIS. However, as per above the new complex rules regarding overseas costs and subcontracted R&D costs will apply.
Whilst the definition of eligible R&D activities remains the same as the previous RDEC and SME R&D regime, there are some additional complexities in relation to contracted costs and overseas costs. It is therefore really important that companies consider these complexities early to understand the impact on claims.