Why HMRC rewards innovation in UK businesses

HMRC’s R&D tax relief scheme isn’t just a nice ‘perk’ for UK businesses: it’s a strategic incentive designed to encourage innovation. Keep reading to find out why…

The R&D tax relief incentive reduces the amount of corporation tax that businesses have to pay. If you can prove to HMRC that your business spent money on an innovative project, you may be able to claim R&D tax relief.

Just to be clear, HMRC defines an innovative project as one that advances science or technology. To qualify for R&D tax relief, you must prove that you overcame a technical uncertainty and that the solution wasn’t easily deducible by a competent professional.

One of the best things about HMRC’s R&D tax relief scheme is how broad it is. Whether your business has worked on product or process innovation (regardless of the sector), you may be able to pay less corporation tax.

You can find out more about how R&D tax relief works in our online guide.


What’s the point of R&D tax relief?

We’ve all heard the phrase “never look a gift horse in the mouth”. In other words, don’t ask questions when receiving a gift or perk. In the case of R&D tax relief, however, the incentive makes a lot more sense if you understand why it is offered.

Reducing a company’s corporation tax through the R&D relief incentive is intended to reward businesses for innovative risk-taking.

Coming up with an innovative solution to a problem can be a tricky process. You may not get the answer right the first time, if at all. So, even if a project fails, businesses may still receive the R&D relief incentive.

In short, the R&D relief scheme aims to ease the costs of R&D, reward businesses for innovative work, and encourage them to keep doing it.


Why does HMRC want to encourage innovation?

This is the real reason the R&D tax relief incentive exists: HMRC wants to encourage innovation because it’s good for the economy.

Economic growth is a fundamental outcome of innovation. Check out what the European Central Bank has to say about R&D and innovation:

“One of the major benefits of innovation is its contribution to economic growth. Simply put, innovation can lead to higher productivity, meaning that the same input generates a greater output. As productivity rises, more goods and services are produced – in other words, the economy grows.”

The benefits of innovation are far-reaching and exist on a micro and macro level.

At a micro level, innovation can provide a boost to individual businesses. It can provide an edge over competitors, enabling businesses to produce more, sell more, and even charge more for their services. The increased turnover can help companies win larger projects, and even hire more staff to keep up with demand.

When enough companies benefit from a boost of innovation, these benefits create a ripple effect across the economy. Creating more (and better) jobs increases public spending, in turn stimulating the economy. According to the Intellectual Property Office’s 2019 Innovation and Growth Report, UK industry invested £134.3bn in innovative intellectual property: 6.8% of the UK’s total GDP.

Advances in science and technology enable society to benefit from better health, education, and work-life balance. While these are all great for us as individuals, such advances also improve the overall success of a country.

HMRC’s R&D tax relief scheme can provide valuable cash injections to businesses that conduct innovative work. But as we have shown, it is much more than that: it’s a long-term, strategic move by the government to safeguard the economy. With that in mind, we urge any business that engages in innovative research and development to contact an R&D tax relief adviser. After all, rewarding innovation is exactly why this incentive exists.

Get in touch with an adviser at Hamilton Blake Consulting to find out more.

Get in contact with us to see how we can help you apply for your R&D Tax Credits