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Tax Incentive Eligibility

June 28, 2022
Published on:
February 16, 2021

Q. What tax incentives can an eligible company benefit from in the UK?

A. The UK has a number of schemes in place to incentivise businesses. These include:

Research & Development (R&D)

The UK’s R&D tax credit regime is one of the most attractive in the world. The repayable credit under the SME scheme is 14.5%.

The scheme gives higher rates of corporation tax relief on allowable R&D costs. It also includes a repayable tax credit in some cases, which can often be a lifeline to early stage businesses.

To enhance the possibilities of qualifying for this relief, you need to consider carefully how you are structured and must meet the HMRC criteria, which look at four key aspects:

  1. What is the scientific or technological advance?
  2. What were the scientific or technological uncertainties involved in the project?
  3. How and when were the uncertainties actually overcome?
  4. Why was the knowledge being sought not readily deducible by a competent professional?

Patent Box

The Patent Box is a tax incentive available for a UK company or an overseas company subject to UK Corporation tax by virtue of a Branch or Permanent Establishment, on the use of existing and development of new, innovative patented products.

Patent Box is an optional regime that companies elect into to benefit from the Patent Box tax rate. Where a company elects into the Patent Box regime, their worldwide profits from the exploitation of eligible patents will be subject to a lower UK corporation tax rate of 10% instead of the main rate of corporation tax, currently at 19%.

Capital allowances

Expenditure on certain assets that you acquire to use in your business can qualify for capital allowances. Capital allowances allow you to deduct the cost of these assets off against taxable income. ‘Plant and machinery’ assets that qualify can include anything from office furniture, IT equipment and certain fixtures in buildings, such as lifts.

The UK tax regime offers a 100% initial allowance (annual investment allowance) for qualifying expenditure up to £1 million per year incurred before 1 January 2022 (reverts to £200,000 per year thereafter).

Video Games Tax Relief

Video games tax relief (VGTR) is part of the UK government’s strategy to promote the creative sector in the UK through generous tax reliefs. Qualifying companies can claim an additional deduction in calculating their taxable profits. Where an additional deduction results in a loss, companies are entitled to surrender losses for a payable tax credit

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