Research and development tax relief

Research and development (R&D) tax relief is an incentive designed to encourage businesses with various innovative projects to invest in the UK as their base. It’s available for companies of all sizes. There are two regimes for R&D tax relief:

• • small- and medium-sized enterprise (SME) scheme; and
• • R&D expenditure credit (RDEC) scheme for expenditure that doesn’t fall into the SME scheme.
  

To qualify for the relief, your company must be looking to develop new or improved products, processes, materials, services or devices that will resolve uncertainty in science or technology. 

Drawing on our close working relationships with HMRC’s R&D specialist units, our experts have helped businesses of all sizes and across sectors to make successful R&D tax relief claims. We’ll take care of the process for you, minimising time commitments for you and your teams.

Find more detail on the regimes:

Patent box relief

First introduced in 2013, patent box relief enables companies to apply a lower rate of corporation tax to profits from patented products and equivalent forms of intellectual property. By reducing corporation tax to as little as 10%, it supports the development and commercialisation of intellectual property in the UK. The regime works alongside R&D and RDEC, meaning businesses can benefit from it in addition to these other incentives.  

There is a detailed calculation in the patent box rules, which sets out how to benefit from the reduced corporation tax rate. Carrying out this calculation is part of the annual tax compliance process where it applies. You receive the benefit through an additional deduction from taxable profits. 

Eligibility for patent box relief

You can work out your business’s eligibility using the following three steps.

1. Company eligibility: Companies of any size are eligible for patent box relief. It must be liable to UK corporation tax and make trading profits from exploiting qualifying IP rights.
   
   
2. Holding a qualifying IP right: The most common type of qualifying IP is a patent. Patents must have been granted by the UK Intellectual Property Office or a specified European patent office. Some specifically listed other IP rights also fall within scope. A company may benefit if it holds the qualifying IP right itself, or if it holds an exclusive licence for the qualifying IP right.
   
   
3. Calculating relevant IP profits: Companies that are eligible must calculate the profit attributable to those rights to assess the benefit of electing into the regime.

For more information on patent box tax relief, please contact James Tetley.

Video games tax relief

The UK government has been boosting the creative sector for some years with generous corporation tax allowances and credits for certain activities. One of these is video games tax relief (VGTR). 

If you haven’t already considered whether this relief applies to your business, it’s worthwhile doing so now. Companies producing video games can claim an additional tax deduction, and where the business is making a loss, there’s scope to claim cash credits. The benefit could be worth up to 20% of qualifying production spend.

Qualifying expenditure

The qualifying production spend is generally the cost of design, production/programming and testing of the video game up to the point it’s completed for delivery, though there are specific costs that are not eligible. For instance, costs to find out whether a game is commercially feasible and those for debugging, publicity and post-release maintenance don’t qualify.

VGTR eligibility

In order to qualify for relief, a video game must be certified as a British video game by the British Film Institute (BFI). The BFI tests games against specific criteria to make sure it aligns with British culture. These tests allow certain expenditure to take place outside the UK and relief is available for costs incurred throughout the European Economic Area (EEA).

Specialist advice VGTR

There are various practical considerations when claiming VGTR, including how it runs alongside R&D tax relief. With lots of experience in creative industry tax relief claims, we can help you decide whether it’s feasible for your business and guide you through your claim. Our services in this area include:

• providing advice on how the scheme works and how to maximise the benefits;
• preparing or reviewing claims; 
• assisting with BFI applications;
• auditor certification for final certificates;
• advice on the interaction with R&D tax relief (this can be a complex area); and
• dealing with HMRC queries.

For more information on video games tax relief, please contact Graham Steele.

Creative sector tax reliefs

Additional tax reliefs are available for several creative sectors as part of the UK government’s push to boost these industries. Companies must be directly responsible for and actively engaged in producing the end product. You may be able to maximise your business’s claims with enhanced tax reliefs and could possibly even get cash back from HMRC.

There are two elements to the relief.

• Additional corporation tax deduction: An additional deduction of 100% of the qualifying expenditure used in the EEA (or 80% of total qualifying expenditure if this is lower).
• Tax refund: Where the additional deduction results in a loss in the separate trade, the deduction (or the loss, where lower) may be surrendered for a tax refund of at least 25% of the relevant amount.

The following creative sectors are eligible for the relief:

Films

To qualify for the relief, a film must be certified by the British Film Institute as a ‘British film’ intended for theatrical release. Certain films, such as promotional releases, would not be eligible for relief.

Television

Television programmes that qualify for relief include dramas, documentaries or comedies intended for broadcast with a slot length greater than 30 minutes. In addition, the average core expenditure per hour of slot length should be no less than £1m. Promotional programmes aren’t eligible.

Animation

A programme will be treated as an animation if over half of the total qualifying expenditure on the completed programme is spent on animation. 

In addition, programmes must have certification from the BFI as a ‘British television programme’, be intended for broadcast on television (including via the internet), and not used for promotional purposes. At least 10% of the qualifying expenditure must be used in the UK.

Children’s television

Children’s programmes have qualified for the relief for many years. They don’t need an average core expenditure or slot length provision. Additionally, programmes such as game shows or quizzes can include an element of competition, providing the prize doesn’t exceed £1000.

Theatrical productions and orchestral concerts

The relief is available for live performances whether performed for paying members of the public, for charitable donations or for educational purposes.

Orchestral concerts also need to have at least 12 instrumentalists and the majority of instruments must not be electronically or directly amplified.

Museum and gallery exhibitions

To qualify, the company must be responsible for the exhibition at a single venue, or the first venue of any tour, and must make creative, technical and artistic contributions to the exhibition. Alternatively, a company can claim where responsible for a touring exhibition.

Charitable companies and those owned by a charity or local authority that maintain museums or galleries can also claim.

Certain exhibitions would not be eligible for relief, for example where items are for sale or connected to a competition.

For more information on creative sector tax reliefs, please contact Will Simpson or Graham Steele.