14 Jun 2024

Can Companies Claim R&D Tax Relief on the Costs of Acquiring Patents?

Sam Stephens
Director

When companies engage in innovation, securing intellectual property through patents often becomes a crucial part of their strategy. Patents provide legal protection and a competitive edge, ensuring that investments in research and development (R&D) yield exclusive benefits. However, the process of acquiring patents involves significant costs. This raises an important question: can companies claim R&D Tax Relief on the costs associated with acquiring patents? 

Understanding R&D Tax Relief

What is R&D Tax Relief? 

R&D Tax Relief is a government initiative designed to incentivise companies to invest in research and development activities. This relief allows companies to claim back a portion of their R&D expenditure, either through reduced corporation tax or as a cash credit. The goal is to make R&D more financially feasible, encouraging innovation and technological advancements. 

Qualifying Expenditures 

To qualify for R&D Tax Relief, expenditures must be directly related to R&D activities. These typically include: 

  • Staff costs 
  • Consumables and materials 
  • Software and utilities 
  • Subcontractor costs 
  • Some categories of capital expenditure 

The primary focus is on the costs directly involved in solving scientific or technological uncertainties to achieve an advance in knowledge or capability. 

Patent Acquisition Costs: Eligible or Not?

What Are Patent Acquisition Costs? 

Patent acquisition costs encompass various expenses, such as: 

  • Patent application fees
  • Legal fees for drafting and filing the patent 
  • Costs of defending the patent application 
  • Renewal fees 

These costs are part of securing intellectual property rights to protect innovations and ensure a competitive edge in the market. 

Copyright or patent concept, intellectual property. Patented bra

Exclusion of Patent Acquisition Costs from R&D Tax Relief

Unfortunately, the costs associated with acquiring patents do not qualify for R&D Tax Relief. This exclusion stems from the fact that these costs are considered to be related to protecting the outcomes of R&D, rather than being part of the R&D activities themselves.  

The Rationale Behind the Exclusion

The core objective of R&D Tax Relief is to reduce the financial burden of innovation by supporting the actual R&D activities. Patent acquisition, while essential for safeguarding innovations, is viewed as a legal and administrative process separate from the R&D work. Therefore, the government distinguishes between the costs of creating new knowledge (which qualify for relief) and the costs of protecting that knowledge (which do not). 

Maximising Financial Benefits: Alternative Approaches

The Patent Box Scheme 

While patent acquisition costs are not eligible for R&D Tax Relief, companies can benefit from the Patent Box scheme. This initiative allows companies to apply a lower rate of Corporation Tax to profits earned from patented inventions. By reducing the tax rate to 10% on qualifying profits, the Patent Box scheme provides a significant financial incentive for companies to invest in acquiring and utilising patents. 

Strategic R&D Planning

To maximise the benefits of both R&D Tax Relief and the Patent Box scheme, companies should adopt a strategic approach to their innovation activities. This involves: 

  • Ensuring meticulous documentation of R&D activities to claim maximum R&D Tax Relief. 
  • Identifying patentable innovations early in the R&D process to streamline the transition into the Patent Box scheme. 
  • Integrating financial planning to align R&D efforts with patent strategies. 
  • Leveraging Professional Expertise 

Navigating the complexities of R&D Tax Relief and patent acquisition can be challenging. At TBAT Innovation, we specialise in R&D tax relief, grant funding, patent box and a number of specialist services. Our expert team offers guidance on applying for the Patent Box, ensuring your application is robust and compliant with all requirements.

Conclusion 

While the costs of acquiring patents are not eligible for R&D Tax Relief, companies can still leverage other incentives, such as the Patent Box scheme, to mitigate these expenses. By strategically aligning their R&D and patent activities, businesses can optimise their financial position and continue to innovate effectively. 

Understanding the nuances of R&D Tax Relief and patent acquisition is crucial for any company engaged in innovation. With careful planning and the right professional support, companies can navigate these financial landscapes, ensuring that their investments in R&D and intellectual property yield maximum returns. 

Do you have a query surrounding patents or R&D tax? Book a free 1-2-1 consultation today.  

Related Articles

12 Jul 2024

First-Tier Tribunal Case Summary– Get Onbord Limited V HMRC

In a big step forward for R&D Tax Credits, HMRC has recently lost a case at the first-tier tribunal against software company Get Onbord Ltd. This decision is a fantastic demonstration of the realities of software development and the use of existing technologies. We have summarised the tribunal case document and highlighted our key takeaways.

R&D Tax Credits
Bulb
09 Jul 2024

Understanding R&D Tax Relief: Activities and Eligibility in the UK

Explore who can claim R&D Tax in the UK, what activities qualify, and some of the key criteria. Understanding who can claim and what activities qualify for R&D tax can often be quite complex. We shed some light on these aspects, helping businesses navigate the R&D tax relief landscape with greater confidence.

R&D Tax Credits
Bulb

An independent consultancy, highly skilled and experienced

Assists organisations in accessing research and development grant funding across a range of UK and EU schemes and industry sectors.

Get In Touch