Tax Incentives for Innovation: Fuelling Business Growth

Innovation isn’t just about coming up with new ideas; it’s a strategic approach that can open doors to new markets, enhance services, and elevate a business’s standing in a competitive landscape. Embracing innovation not only brings competitive advantage but also provides access to valuable tax reliefs and incentives that can propel business growth.

Businesses that innovate may be eligible for a variety of tax reliefs and incentives. Here’s a snapshot of the key options available:

Creative businesses in eligible industries can maximise their allowable expenditure by reducing their corporation tax. This relief targets businesses that handle all stages of production and create content certified as British.

This relief encompasses a range of activities, including animation, children’s television, film, high-end television, museums and gallery exhibitions, orchestra, theatre, and video games. It provides a financial boost to innovative businesses while fostering the growth of the creative sector.

The Patent Box incentive is designed to encourage companies to develop and commercialise intellectual property within the UK, including innovative patented products. Businesses opting for the Patent Box can apply a reduced rate of corporation tax to profits attributed to qualifying patents, whether received as royalties or integrated into sales prices.

R&D tax relief supports companies, both SMEs and large enterprises, engaged in developing new products, processes, or services that advance science or technology.

Qualifying SMEs can benefit from a super-deduction of 230%, comprising 130% of qualifying costs in addition to the standard 100% deduction. If a company faces losses, it can claim a tax credit of up to 14.5%. This relief is tied to the company’s R&D expenditure.

Venture capital schemes offer income tax and capital gains tax reliefs to incentivize SME growth and attract investors. These include the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trust (VCT).

Investors in EIS and VCT programs can benefit from a 30% income tax relief, alongside exemptions from capital gains tax. SEIS provides a 50% income tax relief and targets businesses under two years old.