Although London’s start-up scene continues to thrive, many companies still find it a challenge to fund their innovation programme.
Irrespective of Brexit, London’s start-up scene continues to thrive. Total venture capital funding for British start-ups grew by 44% to a record $13.2 billion in 2019, (a third of the c.$40 billion injected into European tech companies last year), placing the UK 4th in the world after India, China and the US. By contrast, investment in U.S. and Chinese tech firms slowed last year, down 20% and 65% respectively, while remaining the top 2 in terms of deal value tech investment.
Despite this record investment, sourcing innovation funding for a start-up, scaling, non-tech led, or established business can still be a time-consuming challenge for a founder or small management team, often detracting focus away from the day to day business operation.
Yet, the majority of eligible SME’s do not claim their entitlement to tens of thousands of pounds of government innovation-reward funding each year via R&D tax credits and even fewer companies commercialise their IP (Intellectual Property) and benefit from the Patent Box. Both schemes playing an important, often symbiotic role during the innovation life cycle, reducing the real cost of investment, facilitating further investment and enabling a continuous innovation cycle.
Under the R&D scheme much of the work a company undertakes to meet innovative challenges, address a design, technical or production challenge, improve systems & capabilities, productivity or efficiency, is scheme eligible R&D. So If you are taking a development risk by attempting to resolve scientific or technological uncertainties for which the advance or solution sought is not readily available in the public domain or readily deducible by a competent professional in the same field, you may benefit, receiving up to 33% of your invested scheme qualifying development costs back. The average HMRC annual R&D claim payment to SME’s is currently £54,000pa, which for trading companies is the equivalent of having to bring in an incremental £540k of sales on a 10% EBIT to generate the same amount of free cash.
Given that companies with successful innovation programs, a formal process and a strategic approach to their IP perform better and grow significantly faster than companies without a formal structured system in place – growing at a 3-fold difference in 5 years, and 45% to 80% of the wealth of a typical business comes from its Intellectual Property Rights, your IP is often the most valuable asset your company owns. So, the big question, why don’t businesses, particularly SME’s, protect, commercialise and harvest their IP, namely patents, through the Innovation life cycle? In our experience, the answer is – lack of certainty, high unpredictable costs and unaffordable defence. A potential solution is to think about value creation, not just protection. Unlocking a possible £ goldmine in the process. As If you’ve answered the questions asked by the R&D scheme, (the “novel and inventive” criteria required by a Patent examiner on patent application aligns very closely to an “advancement and not readily deducible by a competent professional”), you will have already formed a picture of if your innovation is potentially patentable, then, with a simple patent found in your R&D i.e. an novel & inventive “blade of grass” vs patenting “whole field with an impenetrable shield”, you’re taxed much less and could save £ thousands a year, every year, under the Patent Box, without the high bills & complexity often associated with patenting.
With the Patent Box, Corporation Tax is reduced to 10% for the life of the patent on profits from the worldwide sale of the patented invention, If the patented element is minor 100% of income can still qualify. R&D tax credits can also be claimed for the patent development work, both schemes, together, delivering the funds to support a continuous innovation programme & sustained, profitable business growth.
So, if you believe your innovations qualify under the R&D tax credit scheme, or you are already claiming, you need in addition to challenge your R&D claim advisor not only to maximise your R&D claim, but to then help drive and commercialise your longer-term IP agenda.
In the absence of an effective, globally agreed strategy, huge problems such as the climate crisis and eliminating environmentally harmful waste aren’t simply going to go away; why UK entrepreneurs need to be aware of and proactively maximise existing government innovation-funding schemes, like R&D tax credits and the Patent Box, to help enable them to keep doing what they do best… to innovate our way out.
Want to unlock valuable cash injection for your business through Research and Development, Tax Credit and Patent Box innovation funding schemes? Meet and learn from the GovGrant team at The Business Funding Show ’20 happening on Feb 20. GovGrant’s mission is to make sure that innovation in any business is recognised and receives a full range of available government funding enabling the creation of new products, systems, devices or services that add real value, support business expansion and growth and enhance company valuation. Learn more and purchase tickets to #BFS20 here: https://bit.ly/3b1ch0J
Written by: GovGrant