How UK businesses can fund their investment in innovation
8 August 2018
Mike Price, Director at MPA Group
Every year, thousands of businesses miss out on £150,000, on average, for reasons ranging from lack of awareness to ill advice from advisors. Government schemes such as R&D Tax Credits or Patent Box can be difficult to navigate, with complex rules to adhere to and a basic barrier observed in understanding exactly what HMRC defines as “research and development”. What still seems to be broadly misunderstood is that R&D isn’t only carried out just by men in white coats – it spans all industries and covers activity from app development and cell imaging technology to engineering and tooling development.
The financial reward on offer for innovative businesses is substantial and, when claimed well, can fund business growth, enable product or service development and allow businesses to enter new markets – all of which can be challenging to achieve, especially in the start-up and SME arena.
The government has even recognised the particular struggle faced by start-ups and SMEs in finding funding for their innovations, and so rewards them on a larger scale, offering 33 per cent return on their investment in R&D activity.
The role played by funding specialists such as MPA Group is important in ensuring businesses are made aware of the scheme, alerted to their eligibility and understand the financial benefits. A level of expertise is required around identifying qualifying activity and ensuring different schemes and grants work together – when there’s £150,000 to be gained every year, it’s certainly worth looking into.
Get your share of innovation funding by visiting www.thempagroup.co.uk
Welcome to Business Reporter's innovative Britain campaign. I'm Rachel Hicks. No UK business would ever turn down 150,000 pound cash injection. But every year, thousands of businesses that qualify for similar amounts in government funding failed to pursue the opportunity. With the chancellor of the Exchequer Philip Hammond committing to an additional 2.3 billion pound investment in research and development this year, the importance of innovation to the UK economy has clearly been recognised.
So what is preventing UK businesses from taking advantage of these funding opportunities? With me in the studio is Mike price, director of tax specialist firm, the MPA Group. Good morning, Mike.
Now, can you put government funding schemes like the patent box and R&D into context for us?
The UK is desperate for economic growth, and innovation is the quickest and simplest way of achieving that growth. The government wants to give every single technology based company 150,000 pounds in order that they can spend that on innovation. If an economy spends more than 2% of its GDP on innovation, then the entire economy grows across all sectors. That's got to be good news for UK.
So in that case, why are so many businesses missing out on what would seem to be a bit of a golden egg in this funding opportunity?
Business owners and chief execs either don't know about the scheme or consider it too complicated. R&D has been around for 10 years, Patent Box for five, so there's really no excuse to not know about them. Companies will tend to rely on their advisors, their accountants, their tax advisors. And it's these people that need to be educated. In terms of complexity, the scheme is administered by HMRC through your tax account. There are lots of rules as to what qualifies and what doesn't, and that makes it complicated. Just the opening lines of legislation may be enough to put most companies off.
Can you tell us what that is?
Yeah. It starts off by saying, "are you expanding the-- contributing to the world's knowledge?" I mean, they're big words, big statements, and most companies are frightened off straightaway.
I'm not surprised. That does sound incredibly intimidating. OK, so let's take a look at that first line of the legislation. What do you think the government actually means by that? What is the practical view of what the government are looking for from that, do you think?
So [INAUDIBLE] really is about compromise. It's about finding solutions to compromises. We can all understand R&D as being people in a laboratory in white coats and are finding a cure for cancer. Clearly that's research and development. But it's a lot wider than that. So if you think about your car, for instance, it has an exhaust. And that is just a tube under the car that takes the emissions from the engine to the back of the car. There can't be too many emissions coming out the back of the car, but the emissions create a stop in the exhaust. And that effects and compromises the performance of the engine.
So when you look at these compromises, where you have to design around the compromises, where you have to create a prototype, where you would test and trial, that's where the R&D is hidden, in those little areas there.
But many engineers would say, well, that's just what we do. Wouldn't they? That's just our job.
Yes, certainly. We hear it from our clients all the time. That can't be R&D, that's just what we do. But the reality is if you are spending time and effort overcoming compromises, then you are adding to the sum of the world's knowledge. And if you are, then you should be out there and you should be claiming your 150,000 pounds a year.
What about Patent Box? How does that fit into the picture?
Well, first of all, don't be frightened by the fact that it's got patents in there. They're much easier to get now. MPA Group can help you get a patent for less than 5,000 pounds in less than 12 months, so they're not frightening anymore. In terms of how it works-- if you think about a lamp post, there's a device in the lamp post that tells the light when to come on and how brightly to shine. And again, there's a compromise in there that says, don't shine too brightly because you'd use too much electricity. And that's got the patent in it.
But the patent can be applied much wider than that. The lamp post is a steel column, there's brackets in there inside it. There will be transformers and wires and drivers and lamps. Just that one tiny element has got a patent on it. But done well, Patent Box can be applied to the profits that attributes to the entire lamppost.
Which would be such a bonus for businesses if they could harness that, I'm sure.
Most businesses should be claiming 150,000 pounds a year from these two benefits combined.
So again, lost revenue. So Mike, how do you see the uptake of the government funding over the next five years?
Well, I hope it increases. The very point of these schemes is to make the UK competitive on the world stage. I mean, with Brexit coming, that's going to be even more important. Every business, every chief exec should be looking at getting this funding. They should be getting the funding in order to make their companies more successful, but also to drive the whole of the UK.
So if I had to ask you for three key takeaways for business owners, for CEOs, who are making these decisions and looking at their business, what would the three main points be that you'd want people to consider?
The key takeaway for me is challenge your advisor. You've got an advisor out there that is telling you whether you can or cannot claim these. You need to make sure your advisor is competent and capable to give you the right answer and seek the advice of a specialist.
Mike Price from the MPA Group. Thank you very much for joining us.