Innovating and investing in 2023: what are your tax options?

Innovating and investing in 2023: what are your tax options?

With the economic chaos that we’ve faced in recent months, it’s no surprise that some business owners have put innovation and investment on the back burner.

But with a new financial year and new tax rates having been implemented, now could be the perfect time to consider what the future of your business, industry and market looks like, and how you can set yourself apart from your competitors. Innovation and investment will be a crucial part of this.

So what tax options are in place to support you in doing so?

 

Capital allowances: What are your next steps post-super deduction?

The capital allowances super deduction rewarded businesses for investing during and after the pandemic. Organisations were able to cut their tax bill by 25p for every £1 they invested in plant or machinery.
As far as the regime goes, it was a success, with business investment steadily increasing each year after the super deduction was implemented.

Whilst the super deduction has now ended, all is not lost. A full expensing regime has been implemented as a replacement. If you’re investing in plant and machinery to keep within your business, the full expensing regime allows you to write off 100% of the cost of your investment to fully expensed, whilst also potentially benefitting from the 50% first-year allowance for qualifying special rate expenditure.

At least the full expensing regime offers a replacement for the super deduction rather than returning to the prior rates. But whether this will this go far enough to incentivise investment during a time of economic turmoil? Only time will tell.

 

Innovation and R&D: More changes to tax relief ahead…

Research and Development (R&D) tax relief has been offering invaluable tax relief for innovative businesses for over 20 years. And with qualifying expenditure having been broadened to include cloud computing, data and pure mathematics, there is potential for eligible businesses to encompass even more costs within their claims.

But huge changes to the R&D tax relief landscape are on the horizon, from subcontractor costs to additional information requirements. This can add another layer of administration for owner managers who are already strapped for time.

And with talks of a potential merging of the RDEC and SME schemes being announced as early as August, we could be seeing more change in the months and years to come.

 

Could your intellectual property plug the gap?

For innovative businesses, protecting your intellectual property is crucial, whether it be through trademark or patent. And when it comes to patents, there are huge commercial advantages which can give you a competitive edge within your industry.

But, there’s a misconception that the cost of applying for a patent is in the tens of thousands. In reality the average UK patent cost comes in at around £6,000. This investment pales in comparison to the benefits that come with a patent, especially with regards to tax relief.

Patent box tax relief cuts your corporation tax rate to 10% on eligible profits which are attributable to your patent. With corporation tax rates increasing to 25%, this lower rate has never been more valuable. This could free up extra cash in your business which you can then reinvest in further innovations.

For eligible businesses, it can take two years to secure a patent. This gives you enough time to plan ahead and plug any gaps which may occur off the back of the lower R&D tax relif rates. An option which could lessen the potential strain on your cashflow.

 

Could a hybrid approach to tax relief work for your business?

It's worth keeping in mind that patent box, capital allowances and R&D aren't mutually exclusive.
All three of these innovative tax reliefs can be used in tandem with one another. When businesses adopt a hybrid approach to the reliefs, the tax saving can be astronomical. An opportunity not to be missed in these uncertain times.

That being said all three of these tax reliefs are complex in their own right and subject to regulator change. We would always recommend speaking to an expert to ensure you are staying compliant.

 

---

Supporting you with innovation and invention

Our team is comprised of industry experts, chartered tax advisors and ex-HMRC inspectors.
Whether it’s assessing your eligibility, scoping your projects, or answering your questions, we are on hand to support you with your innovation and investment journey.