Innovation Taxes

Our Innovation Taxes team helps companies access R&D Tax Incentives, as well as other tax incentives for innovative and creative businesses, including Patent Box Relief and Video Games Tax Relief.

R&D Tax Incentives

The UK R&D Tax Incentive regimes are designed to promote private sector investment in innovation. Small and Medium-sized Enterprises (SMEs) can claim under the R&D tax credit scheme, whereas large companies (and SMEs carrying out funded or contract R&D) can claim under the Research and Development Expenditure Credit scheme (RDEC). For expenditure incurred prior to the 1 April 2023, SMEs can claim up to 33p for every pound of eligible expenditure on in-house, unfunded R&D, and can receive a cash payment even if they are loss-making or pre-trading.  

Over recent Fiscal Events, the Government has announced a raft of changes to the R&D tax relief schemes, including changes to the rates of R&D tax relief available. These affect current claimants of R&D tax relief under both the SME and RDEC schemes and apply to expenditure incurred on or after 1 April 2023. For expenditure incurred on or after this date, a company claiming under the SME scheme can receive relief of up to 27p for every pound of eligible expenditure incurred.  The precise rate of relief available, which can range from 18.6p to 27p, will be dependent on the claimant company’s circumstances.  With regards to the RDEC scheme, for expenditure incurred on or after 1 April 2023, the effective rate of relief will be 15p for every pound of eligible expenditure incurred.

The Government is currently consulting on whether the SME and RDEC schemes should be consolidated into one R&D tax relief scheme (similar to other R&D regimes internationally), with implementation expected from 1 April 2024.

We offer a range of R&D Tax Incentive Services, from feasibility studies to full claim preparation - find out more.

Patent Box Relief

Once technology has been developed and commercialised, Patent Box Relief can offer significant Corporation Tax savings to companies on the profits they generate.

Companies that elect into the Patent Box regime obtain an effective 10% rate of Corporation Tax on profits attributable to qualifying Intellectual Property (IP), rather than the main rate of Corporation Tax (currently 19%, increasing to 25% from April 2023, subject to a small profits rate and marginal relief). The Patent Box regime is complex; however, at Johnston Carmichael our specialists are on hand to help you through every step of the process. 

We offer a range of Patent Box Relief services, from feasibility studies to full claim preparation - find out more. 

Video Games Tax Relief

Video Games Tax Relief (VGTR) is one of a group of corporate tax reliefs designed to assist companies operating within creative industries.

Introduced in 2014, VGTR can generate significant corporation tax savings for UK game developers. Qualifying companies can claim an additional deduction in calculating taxable profits of up to 80% of the core expenditure incurred in developing the video game. In certain circumstances, the relief can result in cash payments becoming due to the company.  Although the relief is generous, the VGTR legislation is complex and there are numerous conditions that must be satisfied in order for a company to be eligible to claim. In addition, companies also need to consider the potential implications that claiming VGTR might have on the availability of other reliefs and benefits. For example, a company cannot claim both VGTR and R&D Tax Relief in respect of the same expenditure.

At Autumn Budget 2022, the Government launched the Audio-visual Tax Reliefs consultation, which covered the five audio-visual tax reliefs: Film Tax Relief (FTR), High-End Television Tax Relief (HETV Tax Relief), Animation Tax Relief (ATR), Children’s TV Tax Relief (CTR) and Video Games Tax Relief (VGTR).  The output of the consultation and the associated policy decisions were published as part of the Spring Budget 2023.  In publishing, the Government stated that it is committed to ensuring the Audio-visual Tax Reliefs remain world-leading and continue to best serve the needs of creative companies.

On the mechanics of the relief calculations, the changes announced will see all 5 Audio-visual Tax Reliefs move to an R&D expenditure credit style calculation.  This reform will change the way that relief is calculated.  The new expenditure credit mechanism will be phased in with companies able to claim under this from accounting periods starting on or after 1 January 2024.  Any video game developments that have begun, but not been concluded by 1 April 2025 may continue to claim relief under the current system until 31 March 2027.  With regards to any new games for which work commences after 1 April 2025, relief must be claimed under the new expenditure credit system.  

In addition to the changes to the mechanics of the relief calculation and the headline rate, a number of other notable changes were announced.  Under the existing tax relief available in respect of the development of video games, the VGTR available is calculated by reference to the amount of qualifying expenditure that is also European Economic Area (EEA) expenditure, i.e. expenditure on goods or services that are provided from within the UK or EEA.  The key test here is the location where goods or services come from.  The Budget announcements will alter that, with expenditure now only qualifying to the extent that it is incurred on ‘goods or services used or consumed in the UK’.   The associated legislation and guidance is yet to be published.  As soon as this is available we will set out what this means in practice.    

We offer a range of VGTR Services, from feasibility studies to full claim preparation - find out more.

Our team

Our Innovation Taxes team, which has combined R&D tax relief experience of more than 35 years, can help you navigate the legislation and accompanying guidance, with a view to ensuring that your company receives the maximum relief to which it is entitled. It is often levied at accountants that they don’t have the technical expertise necessary to effectively identify activities that qualify as R&D and to evidence these to HMRC, but this simply cannot be said about Johnston Carmichael. The team comprises scientific and engineering expertise as well as the tax technical, accounting and business advisory specialists necessary to ensure that a holistic approach is taken to the preparation of every claim.

The firm also sits as part of HMRC’s consultative committee on R&D.  This means that we are part of a group of advisers and companies who consult with HMRC on their latest priorities and objectives with regards to their policing of the regimes. It also provides us with a useful forum to feedback on consultations or proposed changes to the legislation and accompanying guidance.

Our clients range from small start-ups to large multinationals, which highlights the flexible approach that we take to assisting clients in this area.

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