One bee on honeycomb

Invent it, make it, sell it: tax reliefs

For many years the UK government has emphasised intellectual property as key to the future of UK plc.

Caroline Hunt, Director, Corporate Tax 
One bee on honeycomb

A series of less than straightforward tax reliefs designed to incentivise UK businesses to create and sell technology based products are now available.

Financing the research: Investment schemes

There are a number of tax efficient capital investment schemes available to investors in smaller companies.

They can receive exemption from capital gains tax (CGT) and a 50% income tax deduction on investments up to £100,000 under the Seed Enterprise Investment Scheme (SEIS). If invested in R&D, this could lead to a repayment of up to £33,350 to the company and £50,000 to the investor.

Under the EIS scheme, investments can be made into larger businesses and, subject to all qualifying conditions being met, an investor can claim income tax relief of up to £300,000, if they make a maximum investment of £1 million in a tax year. The investor will also receive exemption from CGT on the disposal of their shares.

Rewarding the team: share option and bonuses

Fast growing businesses often provide rewards through a combination of share based payments and cash, maximising the value of the rewards while controlling the associated tax and National Insurance costs.

Where employees become entitled to acquire less than 5% equity interest in an employing, or associated company, it may be worth considering Employee Shareholder Shares which may still allow the employee to realise a tax free disposal on the first £100,000 of gain.

Share options can be awarded under the Enterprise Management Incentive Scheme over shares worth up to £250,000 (valued on the date of grant) per employee without a tax charge on either the company or employee. No income tax is charged on the gains made on exercising such options, but the employing company may benefit from a corporation tax deduction for an equal amount. When the shares are sold, the employee may be eligible for CGT Entrepreneurs' Relief on their gains. This could save employees tax on the first £1 million of eligible gains, if the shares have been held for two years, along with certain other conditions.

Creating intellectual property

Businesses creating intellectual property may be able to claim cash tax benefits from HMRC on the following:

  • Research and development (R&D)
  • Patent box
  • Creative and cultural spend on: high-end television productions, animated films, video games, theatre productions, museums and galleries and temporary and touring exhibitions.

Did you know

  • Small companies can claim 43.7% tax relief on its R&D spend. Loss making SME companies can claim up to £33.35 of the R&D spend in cash from HMRC.
  • Large companies can claim up to 10.53% tax relief on its R&D spend. Loss making large companies can claim up to 10.53% of the R&D spend in cash from HMRC.
  • Cash tax benefits can be claimed by companies spending on certain creative and cultural activities.

Exploiting intellectual property

  • Patent Box
    If your product contains even one patented item, the whole of the sales revenue could qualify for the Patent Box. The Patent Box tax rate is 10% compared to the main corporate tax rate of 19%.
  • International
    By its very nature, Intellectual Property can move easily across borders. A business needs to carefully plan how it interacts with overseas buyers to generate significant tax efficiencies reducing VAT, direct tax costs and ensure that any withholding taxes are minimised.

Contact us

Caroline Hunt
Caroline Hunt
Director, Corporate Tax