A complete guide to corporation tax relief

Corporation Tax is a tax imposed on the profits of companies operating in the UK. Unlike Income Tax, which applies to individuals, Corporation Tax is specifically levied on limited companies. For many business owners, understanding and maximising corporation tax relief is essential to maintaining profitability.

This complete guide will delve into the intricacies of Corporation Tax, providing you with the knowledge to potentially reduce your tax liability. We’ll cover the basics, explore available reliefs, and offer practical advice to help you optimise your company’s tax position.

 

Research and Development (R&D) tax relief: incentivising innovation

Research and Development (R&D) tax relief is a valuable incentive offered by the UK government to encourage innovation and advancement in science and technology. This corporation tax relief provides tax benefits to companies undertaking qualifying R&D activities.

As of April 1st, 2024, the R&D tax relief landscape has changed. There’s now a single, unified scheme for all companies, replacing the previous separate schemes for SMEs and larger companies. Additionally, a more generous relief is available for loss-making R&D intensive SMEs.

While often associated with scientific research, R&D encompasses a broader range of activities. From developing new products to improving existing processes or solving technological challenges, many businesses could potentially qualify for this relief.

Determining if your business qualifies for R&D tax relief and accurately calculating the claim can be complex. Seeking professional advice is essential to navigate the intricacies of the scheme and maximise your potential tax savings.

By understanding the R&D tax relief scheme and working with experts, you can unlock significant financial benefits while driving innovation within your business.

The Patent Box: commercialising inventions

The Patent Box is a UK tax incentive designed to encourage companies to develop and commercialise patented inventions within the UK. By qualifying for the Patent Box, your company can potentially reduce its Corporation Tax rate to 10% on profits generated from patented inventions.

To be eligible for the Patent Box, your company must:

• Be liable for Corporation Tax.
• Generate profits from exploiting patented inventions.
• Own or exclusively licence-in the relevant patents.
• Have undertaken qualifying development on the patented invention.

It’s important to note that if your company acquired the patent or made payments to connected parties for R&D, the Patent Box benefits may be restricted.

To qualify for the Patent Box, your company must own or exclusively licence-in patents granted by the UK Intellectual Property Office or the European Patent Office. Additionally, your company (or a group company) must have made a significant contribution to the creation or development of the patented invention or a product incorporating it.

Not all profits qualify for the Patent Box. To be eligible, the profits must come from activities such as selling patented products, licensing patent rights, or receiving infringement income. Even companies in manufacturing and service sectors can potentially qualify by using patented processes or tools.

Determining the profits eligible for the Patent Box and calculating the tax relief can be complex. It involves separating intellectual property income from other income, applying the appropriate tax rate, and considering factors like R&D expenditure and patent acquisition costs.

Corporation Tax Relief for creative industries

Creative industry tax reliefs and expenditure credits are numerous and wide-ranging, allowing all manner of businesses to increase their amount of allowable expenditure and reduce the amount of corporation tax they need to pay. Here, we’ve broken down three of the eight corporate tax reliefs available to creative businesses:

Film Tax Relief: This is a UK government incentive to support the film industry. Your company may be eligible if it produces British films intended for theatrical release with at least 10% of core costs spent in the UK.

You can claim an additional tax deduction or credit based on qualifying UK expenditure. However, it’s important to note that Film Tax Relief is closing from April 2027, with principal photography needing to start before April 2025 to qualify.

Video Games Tax Relief: Your company may be eligible if you produce British video games intended for the general public, with at least 25% of core costs spent within the UK or EEA.

You can claim an additional tax deduction or credit based on qualifying UK expenditure. However, like Film Tax Relief, Video Games Tax Relief is closing from April 2027, with production needing to start before April 2025 to qualify.

Theatre Tax Relief: To qualify, your company must produce live theatre (such as plays, operas, or ballets) intended for a paying audience. A significant portion of production costs must be spent within the UK or EEA (changing to UK-only from April 2024).

Qualifying companies can claim an additional tax deduction or credit based on eligible expenditure. Touring productions may qualify for a higher tax relief rate.

Relief on goodwill and other relevant assets

Goodwill and relevant assets are intangible assets that can significantly impact a business’s value. To encourage investment and growth, the UK government introduced tax relief on these assets under specific conditions.

There has been a change to Corporation Tax relief on goodwill and relevant assets acquired by businesses since April 2019. Now, companies can claim relief on these purchases if they’re made alongside qualifying intellectual property (IP) as part of acquiring another business.

Relief is a fixed rate of 6.5% annually, calculated on the lower value of the asset or six times the qualifying IP cost. This relief reduces your company’s taxable profit and lowers your corporation tax bill.

However, it’s important to note that restrictions still apply. You won’t be eligible for relief if the goodwill and assets were purchased without qualifying IP, not as part of a business acquisition, or from related parties.

How One Two One can help

Understanding the complexities of Corporation Tax is essential for businesses looking to optimise their finances. By taking advantage of reliefs like R&D, the Patent Box, Film Tax Relief, and the new provisions for goodwill and relevant assets, you can significantly reduce your tax liability.

However, navigating these reliefs can be time-consuming and challenging. Let One Two One handle the complexities of your Corporation Tax return. Our team of experts will meticulously calculate your company’s profits, identify tax efficiencies, and ensure you’re not paying more than you owe.

With over 2,500 tax returns successfully completed, we have the experience and knowledge to deliver tailored solutions for your unique business needs.

Contact us today to see how we can help you maximise your tax savings.