Funding your Invention: R & D Tax Credits

I am often asked about where to get funding for one's invention. I mention the usual such as triple F (friends, fools and family), business angels and venture capitalists but often overlook one of the most obvious which is R & D credits. This is a very generous deductible allowance against corporation tax which can actually be a cash rebate for companies that are not liable to pay corporation tax.

There are two schemes: one for small and medium enterprises which has existed since 2000 and the other for larger enterprises which has existed since 2002.  According to HMRC's Research and Development Tax Statistics  which was published on 15 Aug 2014 over 100,000 claims have been made for R & D tax relief since he scheme was launched in 2000 and some £9.5 million has been allowed or paid out in that time.

In R & D Tax Credit Statistics which I published in my Patent Box and R & D Credits blog on 25 Aug 2014 I compared the claims for R & D tax credits and the number of patent applications by region in 2013 and found a remarkable correlation.

R & D Tax Credit Claims and UK Patent Applications 2013

Region	Claims for R & D Credit	Patent Applications
South East	3,030	2,822
London	2,715	2,588
East	1,630	1,802
North West	1,595	1,259
West Midlands	1,280	1,180
South West	1,265	1,368
Yorkshire	1,065	984
East Midlands	1,020	742
Scotland	905	900
North East	545	314
Wales	425	539
Northern Ireland	345	236

Further information on R & D tax credits can be obtained from HMRC's website.  Also, I cover developments in tax law relating to IP in my Patent Box and R & D Tax Credit blog. Our chambers are almost unique in that our intellectual property specialists work under the same roof as Atlas Tax Chambers and share the same clerks. We can thus provide comprehensive IP and corporation tax advice to businesses that invest heavily in high technology. Should anyone wish to discuss this article or any of the topics referred to he or she should call us on 020 74404 5252 during office hours or contact our clerks through this form.

British Business Bank

The most interesting session at this year's Venturefest Yorkshire was From Concept to Commercialization a panel discussion chaired by Nigel Walker of the Technology Strategy Board. One of the members of the panel was Ken Cooper of the British Business Bank ("BBB"). As I had not heard of the BBB before I buttonholed Mr Cooper on his way out and asked him to tell me a little more about his institution which is described as "a state-backed economic development bank" that supports "economic growth by bringing together public and private sector funds to create more effective and efficient finance markets for smaller businesses in the UK."

Surprisingly the BBB is not a throwback to the days of Harold Wilson or even Gordon Brown but a creation of the present government.  Paragraph 2.116 of HM Treasury's Autumn Statement 2012 contained the following statement:

"Business Bank – As announced by the Chancellor and Secretary of State for Business, Innovation and Skills in September 2012, the Government will create a Business Bank. It will deploy £1 billion of additional capital to stimulate the private sector market for long-term capital and address structural gaps in the supply of finance to SMEs. As part of this, the Government will co-invest at least £300 million over the next two years, alongside private investors, in channels that will help diversify the sources of finance available to SMEs. The Business Bank will bring together under a single institution the strategy, management and communication of existing government finance schemes for SMEs. In addition, the Government will also seek to bring government-backed business advice services closer together, harmonise their engagement with customers and coordinate them closely with finance interventions, to improve accessibility for SMEs. A number of the Business Bank’s functions will be operational from spring 2013, with the institution becoming fully operational in autumn 2014. The Secretary of State for Business, Innovation and Skills will set out further details later in December 2012."

Mr. Cooper told me that the BBB is at present merely a programme within the Department for Business, Innovation and Skills ("BIS").  It is not yet authorized or regulated by the Financial Conduct Authority or the Bank of England. However, Her Majesty's government has applied to the European Commission for confirmation that the BBB will fall outside the prohibition of art 107 (1) of the Treaty on the Functioning of the European Union. Should HMG's application be successful the programme will be transferred to a public company by the name of the British Business Bank Plc which will provide various types of financial support for small and medium enterprises ("SME").

BIS expects to unlock up to £10 billion of extra funding for SME over the next 5 years and it has set out how it intends to achieve that objective on the "What we do" page of the BBB website. Rather more detail is given in a presentation dated Fed 2014 entitled "British Business Bank Unlocking Finance for British Business."  The presentation notes that SME in the UK invest far less than their competitors in other EU countries and a number of reasons have been identified as to why that is so. These include

• High market concentration - It is said that there is a highly concentrated market for smaller business lending in the UK, which leads to lack of diversity of financing choices for smaller businesses
• Viable smaller businesses are not being served well enough
• Capital constraints on lenders, and
• Lack of longer term development capital.

The BBB proposes solutions for all those problems. Thus the problem that smaller businesses are not being served well enough will be met by debt programmes, start-up loans, enterprise finance guarantee, equity programmes, enterprise capital funds ("ECF"s), ECF Venture Capital Catalyst, Business Angel CoFund, UK Innovation Investment Fund and the Aspire Fund.

In his talk in York on Thursday Mr Cooper spoke a little about the Angel CoFund which was created with a £50 m grant from the Regional Growth Fund in 2011. It is a £100m investment fund for promising UK businesses and it is intended to help develop business angel investment in this country. The Angel CoFund works very closely with other business angel networks which are represented by the UK Business Angels Association ("UKBAA") and indeed Mr Cooper is a member of the board of UKBAA.

One of the topics discussed that was discussed for some time on Thursday was intellectual property. Nicole Ballantyne of the GrowthAccelerator and PERA Consulting who was also on the panel said that many businesses were unaware of the IP that they already owned much of which could be converted into revenue. She mentioned an IP audit scheme and spoke of the need to protect IP. When the discussion was opened to the floor I rose to point out the distinction between intellectual assets and intellectual property and that businesses can actually ruin themselves by spending too much time, effort and money on patents and other registered rights that they do not need.

Anyone wishing to take advantage of those programmes, whether as inventor, entrepreneur or investor, will need first class advice not just onIP but also on tax. Uniquely our chambers can provide both.  My colleagues and I in our IP, Technology and Media Law Group can advise on IP strategy, patenting and the like and our colleagues in Atlas Tax Chambers which includes Anne Fairpo can advise on such matters as the patent box and other incentives. Should anyone wish to discuss this article or out services generally, he or she should call us on 020 7404 5252 during office hours, fill out my contact form, tweet me, write on my wall or get in touch through G+, Linkedin or Xing.