Research & Development Tax Credits and “Patent Box”.

In the previous blog article I discussed grant funding. However, there are other ways to support innovation via the tax system i.e. Research & Development Tax Credits and “Patent Box”. In this article I shall explain them more fully.

R&D tax relief in broad terms

R&D tax relief is a Corporation Tax incentive that rewards companies for qualifying R&D activities. In simple language, it lets you claim an extra deduction or a credit for a portion of your R&D costs.

1.           What counts as R&D

For tax purposes, R&D is not just white coats in a lab. It is any project that:

• Seeks to achieve an advance in science or technology, and

• Faces genuine technical uncertainty that competent professionals cannot easily resolve at the outset.

Examples include:

• Developing a new manufacturing process with tighter tolerances

• Creating software that integrates systems in a way not previously done

• Improving materials to achieve better performance under specific conditions

Routine work, cosmetic changes and simple configuration usually do not qualify.

2.           Eligible costs

Typical eligible costs include:

• Staff costs for employees working on R&D

• Certain subcontractor and externally provided worker costs

• Materials and consumables used in R&D prototypes

• Some software and cloud computing costs

• Certain payments to research organisations

3.           Current schemes and benefit range

From April 2024 most companies fall into a new merged R&D expenditure credit (RDEC) style scheme at a headline rate of 20 per cent of qualifying spend, which is taxable. The net cash benefit typically falls in the range of about 15 to 16 per cent of qualifying costs, depending on your Corporation Tax rate.

There is also an enhanced R&D intensive support (ERIS) for loss-making SMEs that spend a high proportion of their total costs on R&D. These companies can receive a higher effective benefit, often in the mid-twenties pence per pound of qualifying spend.

For accounting periods beginning before April 2024, the historic SME and RDEC schemes still apply.

The key point for founders is that a well prepared R&D claim can return a meaningful percentage of your qualifying costs as a tax saving or, in some cases, a cash credit.

Patent Box in context

Patent Box is a separate Corporation Tax regime that allows companies to apply a lower effective tax rate, currently around 10 per cent, to profits attributable to qualifying patents and certain other protected rights.

1.           Who qualifies

To benefit, you usually need:

• A UK company that owns or has an exclusive licence to qualifying IP, such as a granted UK or European patent.

• To actively exploit that IP in your products, processes or services.

• To elect into the Patent Box regime and calculate the relevant IP profits.

Unlike R&D tax relief, Patent Box does not give you a cash credit. It reduces the Corporation Tax rate on the qualifying slice of profits.

2.           Link to R&D and IP strategy

R&D tax relief rewards the cost of creating the innovation. Patent Box rewards the profits from successfully commercialising patented innovation.

A joined-up strategy might be:

• Identify which aspects of your technology are genuinely novel and patentable.

• Protect them in a targeted way, avoiding patents that are expensive but commercially irrelevant.

• Use R&D tax relief during the development phase and Patent Box once the patented products generate profits.

Handled properly, the two regimes work together to reduce the effective tax burden over the life of the innovation.

Combining grants, R&D incentives and commercial funding

For many businesses the most powerful approach is to treat grants, R&D relief and Patent Box as part of the broader funding stack, not as separate bolt-ons.

1.           Basic stack example

Imagine a £1 million three-year innovation programme:

• Innovate UK style grant covers 60 per cent of an industrial research work package.

• R&D tax relief claimed on the company’s share of eligible R&D costs across the wider programme.

• Patentable elements are identified and protected, so that future profits may qualify for Patent Box.

Alongside this, the company may still use:

• Term loans or asset finance for capital equipment

• Equity investment for scaling up the team and market entry

• Revenue or working capital facilities to manage day-to-day cash flow

2.           Smoothing cash flow with advance and facility funding

The timing of grant and R&D receipts can create significant cash troughs, even when the overall support is generous.

Specialist innovation lenders such as Sprk Capital offer:

• Advance facilities against expected grant claims, often advancing a portion of the next quarterly payment.

• Loans secured against anticipated R&D tax credits, which can bring cash forward rather than waiting for the Corporation Tax process to complete.

Used carefully, these tools can:

• Reduce the peak negative cash position in a project

• Allow you to keep investing in people and equipment

• Avoid pushing the business back towards high-cost short-term borrowing

However, they are still forms of debt and need to be evaluated like any other borrowing, with careful modelling of worst-case scenarios.

Where a fractional CFO like Experius Consulting fits

The grants and incentives landscape is rich, but it is also complex and fast moving. Recent reforms to R&D tax relief, changes to key Innovate UK programmes and evolving Patent Box rules mean that what was true in 2022 is not necessarily true in 2025.

Most founders do not have the time or the specialist knowledge to track all of this, assemble the right partners and design a funding stack that genuinely supports their strategy.

This is where an experienced fractional CFO partner adds real value.

At Experius Consulting we can help you to:

• Scan the opportunity landscape

Review your current and planned innovation activity and identify relevant grants, tax incentives and innovation contracts.

• Build robust financial models

Map project costs, match funding, grant receipts, R&D claims and commercial borrowing into a single cash flow model, so you can see the true impact on your business.

• Shape the application strategy

Work with technical and grant specialists to align projects with the most suitable calls, structure consortiums, and ensure the financial case is compelling.

• Ensure compliance and audit readiness

Put in place processes for time recording, cost capture and documentation so that grant claims and R&D submissions can stand up to scrutiny.

• Monitor projects and adjust the funding mix

Track performance against plan, manage change requests and update the funding strategy as your business and the external environment evolve.

You do not need a full-time CFO to access this level of support. A fractional CFO gives you senior expertise on a part-time, flexible basis that fits the size of your business.

Practical next steps

If your business is investing in R&D, digital transformation or new products and you suspect you may be leaving money on the table, now is the time to act.

Experius Consulting can help you:

• Understand which grants and incentives are realistic for you

• Design a joined-up strategy that combines grants, R&D relief, Patent Box and commercial funding

• Manage the numbers so that innovation strengthens your cash position rather than straining it

If you would like a confidential, no-obligation conversation about your innovation roadmap and funding options, get in touch and we will explore what is possible.