Can R&D tax relief claims cover the cost of patenting innovation?

While R&D tax relief centres around companies innovating for the sake of advancing a field of science or technology, there is no denying that the end result can be some valuable Intellectual property (IP).

It is natural for a business to want to protect its IP by patenting it to prevent competitors from profiting from the work.

While your client may believe that this is an entirely business-based decision, there could be some ramifications for R&D tax relief that are worth exploring.

How does patenting an IP affect R&D tax relief?

Before 2009, patents and IP were an essential part of claiming R&D tax relief and would often determine a project’s eligibility.

While those requirements have been abolished for nearly two decades, HM Revenue and Customs (HMRC) have continued to show something of an interest in IP as it relates to R&D.

A frequent target during Mandatory Random Enquiry Programme (MREP) challenges, it is not uncommon for HMRC to question companies that have not filed patents for the work they have completed.

Patents are viewed as a shorthand for success and innovation, a way of demonstrating that something truly substantial was achieved during the R&D project.

Unfortunately, the costs associated with filing a patent are not eligible for recovery under any R&D tax relief scheme.

This positions patents as an entirely commercial undertaking, thus the filing of patents does not impact R&D tax relief.

Are patents still important when conducting R&D?

As mentioned, patents occupy a strange middle ground in terms of HMRC’s guidance.

Filing a patent can strengthen the narrative surrounding your client’s work and can lay the groundwork for further R&D projects in the future.

If they have a patent for an innovation, then they are best positioned to refine that system or process, as they have established themselves as experts in the field.

Encouraging your clients to use other reliefs like Patent Box to reward their innovation from a commercial perspective can be an excellent way to ensure they continue to have the funding to innovate further.

Any client should be prepared to justify the lack of patent filing to HMRC, as they may be suspicious of the lack of desire to protect something so innovative.

As R&D tax consultants, we are experts in handling queries raised by HMRC, so we can help you and your client navigate this without jeopardising the eligibility of the claim.

Ultimately, patents are simply an indicator of innovation rather than a determining factor, so do not let the lack of a patent derail an R&D tax relief claim.

Let us help you protect your client’s innovations. Speak to our team today!

Adam Bointon