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Digital innovation taking place across the Fintech industry means businesses in the sector stand to gain the most from the UK government’s Patent Box scheme. However, HMRC data shows that few are capitalising on their innovation.
In 2017-18 finance and insurance companies claimed the highest value proportion of Patent Box relief (34%) which totalled £350 million. Because innovation in the financial and insurance sector is broadly software-based, rather than being centred around mechanical processes or engineering, this figure points to Fintech as being the UK’s highest innovation value sector.
However, the latest HMRC data shows that this claim was made up of only 10 companies – suggesting huge untapped potential for hundreds more Fintech businesses to save on corporation tax, as well as a discrepancy between the vast numbers claiming R&D relief and the few using Patent Box.
The scale of this discrepancy can be mapped by looking more closely at R&D tax credits in the financial and insurance sector compared to Patent Box claims, according to the latest HMRC data:
R&D tax credits:
Any company in the sector which has successfully made an R&D tax credit claim are likely to have patentable IP within the business. So why are so many failing to make the leap from R&D to Patent Box, and how can companies take the next steps to identify the innovation eligible for tax relief?
SME innovators in particular aren’t capitalising anywhere near as much as they could be on potential tax relief for their work.
A successful Patent Box application can reduce an SME’s corporation tax on profits by 44% on average.
Inactivity around Patent Box across the Fintech sector may be fed by the misconception that patenting is a costly and time-consuming legal process whose sole benefit is to protect against IP theft. It’s also a common false belief that patentable innovations have to be traditional ‘inventions’ rather than simply innovative ideas or processes.
Software patenting has previously been perceived as impossible, but this myth is proven wrong by UK Fintech pioneers making successful Patent Box claims. It’s not just large multinationals coming up with patentable innovations – this is happening every day in SMEs.
Patentable innovations in the Fintech industry can include data extraction tools, development of communications technologies, security firewalls, new or improved algorithms, development of system architecture and UIs (user interfaces) and resolving conflicts within software. Companies do not need to be reinventing the wheel in order to have a patentable innovation; it simply needs to be a new and non-obvious solution to a technical problem. Many Fintech SMEs are in the business of devising these on a daily basis.
The general requirements for R&D (technical advances which are not obvious) are the same as those for Patent Box – so why shouldn’t your business benefit from both?
Patentable innovation is taking place across the sector; Fintech companies claiming R&D tax credits simply need to ask themselves whether they are eligible to take the logical next step of claiming through the Patent Box scheme.
The process of innovation is a continuum, and R&D tax credits are only the start – identifying intellectual property (IP) follows, culminating in a patent and a Patent Box claim and the financial benefits it can bring. However, the HMRC data suggests that SMEs are regrettably stopping after one step.
Finding the patentable IP is rarely a case of covering the whole product or service. It’s about identifying that single blade of grass in the first instance, rather than harvesting the entire field. A single patentable innovation can create financial benefits right across the business.
GovGrant is working not only to raise awareness of the wide-ranging benefits of Patent Box, but helping companies of all sizes to identify their patentable IP assets quickly, efficiently and accurately. This is part of the wider process, starting with R&D tax credits, where we guide companies through every possible avenue of claiming tax benefit from their IP – however small or hidden that valuable gem of an innovation may be.
Your Fintech business could be missing out on significant tax benefits. These apply to worldwide revenues for multinational businesses where the patent has been granted in the UK. The purpose of applying for Patent Box is not to draw your company into a long-drawn out legal process but to pinpoint where IP is patentable right from the start, often through a detailed R&D tax report. Taking the time to recognise these areas can have a big financial impact in the long run.
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