Source Advisors Logo

 Reviewed by Alec Griffiths, IP Manager | 1 February 2024.

6 reasons why SMEs are claiming R&D tax relief but not Patent Box

6 reasons why SMEs are claiming R&D tax relief but not Patent Box

We can see innovation as a continuum starting with R&D, which leads to IP creation and patents, finally culminating in a Patent Box claim. So why do SMEs get lost along the way? We should be seeing many of the companies claiming R&D tax relief go on to claim under the Patent Box scheme.

Here at Source Advisors, we know our SME clients are innovating every day, resulting in significant rewards under the R&D tax relief scheme. Unfortunately, we don’t see those same companies capturing and commercialising that innovation with an IP strategy or through a patent.

The barriers could be:

1. Belief that patents are about protection not value creation

A common perception is that you only need a patent for protection, that they are only used for suing infringers. Companies may think that they won’t need a patent as they don’t envisage suing competitors. But this ignores the commercial benefits and value creation potential of a patent.

2. Considered high costs upfront with no certainty of success

We want to change the conversation around IP, it is essential to acknowledge the potential benefit rather than just considering the cost. It’s a question of having more commercial awareness when obtaining patents. Companies need to answer the question “Have I got something worth patenting?” up front. Patent Box dovetails with R&D development, in fact Patent Box picks up where R&D finishes and both benefits can be claimed at the same time.

3. Perceived complexity of legal process to create a patent

It is important to understand that getting a patent does not have to be complicated, all too often people fall into the legal and academic minefield, but navigating that process doesn’t need to be difficult. With clear REALISTIC objectives at the start, the path doesn’t need to be a tricky one.

4. Lack of awareness of the Patent Box scheme

It is our aim to promote the value of IP and Patent Box, but it is true to say that whilst most companies have heard of the R&D tax relief schemes, the same can’t be said of Patent Box. If your business doesn’t currently hold patents, it doesn’t mean that this isn’t an avenue you could explore. Our clients often don’t think they’ve invented anything, underestimating what they achieve every day. In Patent Box you only need a new and non-obvious solution to a technical problem, not a teleportation machine.

5. Misunderstanding the mechanics of the scheme

Patent Box requires a UK or EP patent, but the Patent Box benefit can apply to the worldwide revenues. The improvement need only apply to a component of a larger system, but the Patent Box benefit can apply to the whole system. We use the metaphor of a blade of grass – you don’t need to patent the whole field.

6. Education is needed for professional advisors

R&D is a good indicator of a company’s potential for a Patent Box claim – it’s a conversation that every R&D tax relief claimant should be having with their advisors. Patents shouldn’t just be the occupation of lawyers, Patent Box sits squarely in the remit of accountants.

The requirements for a patent (the technical improvement is novel and not obvious) are parallel with the definition of qualifying R&D (there is a technical advance and it is not obvious to the competent professional). So if the R&D project was a success then chances are there is an invention (blade of grass) in there somewhere. Find out more about our intellectual property consultancy services.

From the Knowledge hub

Contact us to find out how you can make the most of your claim

Welcome to our new website. GovGrant is now known as Source Advisors. To find out more click here