Building a successful manufacturing business is expensive, although if you’re reading this blog post then you probably already know that. So, the question is (and most likely the one that’s made you land on this page): how can you cut costs without jeopardising the quality and efficiency of your manufacturing facility?

Fortunately, there are quite a few ways you can do this. One of the key methods is, rather obviously, through innovation. After all, by investing time and money in discovering new products and processes in the short-term, you put yourself in good stead for making your manufacturing company more cost-effective and efficient in the long-run.

But, we hear you say, I don’t have the money to invest in innovation and where can I magic up this ‘time’ you talk of? Luckily, there are certain government schemes that recognise the difficulties manufacturing businesses face when it comes to time and money, offering tax relief to encourage and help businesses innovate.

They take the form of research and development (otherwise known as R&D) tax credits and the Patent Box scheme. Simply put, with R&D tax relief, you can claim money back on the capital you used to research and develop your idea, while the Patent Box scheme allows you to then take advantage of a lower corporation tax on profits earned from your idea once it’s been patented (legally recognised).

To help you understand how you can maximise your R&D tax relief by benefitting from Patent Box, we’ve put together a short guide.

What is Patent Box? 

Patent Box gives companies - typically small to medium sized businesses - the opportunity to reduce the corporation tax they pay on their patented products from 19% to just 10%. 

Naturally, patented products are those that have been created through research and development. For example, if in your manufacturing facility you’d spent time and money researching and developing a new material to be used in your production line, you could claim R&D tax relief on this and, so long as you get the material patented, you could then opt into the Patent Box scheme and pay less corporation tax on the profits gained from this material as a result. 

How can I apply?

Firstly, after developing your product, you need to patent it. However, this can often be an obstacle to cross in itself as you need to make sure it’s never been patented by anyone else before and you’re not in danger of infringing someone else’s idea and racking up unnecessary legal costs as a result.

Once you’re happy your idea is the first of its kind, make sure you don’t talk about it or publish any work about it publicly before it’s patented - this is a big no no and could stop you from progressing further. 

Then, you simply need to submit an application and wait back to hear from HMRC. After your patent is confirmed and you have exclusive rights to this, your manufacturing company can simply elect into the Patent Box scheme (remember though, this needs to be done in the same year that the patent was granted!). 

What does it all actually mean? 

The government started both the R&D and Patent Box scheme to encourage UK businesses not only to innovate (using R&D tax credits), but to follow through with their ideas in a commercial environment and profit from them (through Patent Box).

This means that, so long as you qualify, you could see a 9% reduction in the corporation tax you pay, as well as a benefit of up to 33% - approximately 33p for every £1 - back on what was spent on qualifying R&D projects.

At Lumo, we understand how important the success of your manufacturing business is to you, especially in the early stages when no two days look the same. To help make best use out of where you’re investing your money, get in touch with Lumo today and we’ll help walk you through the R&D tax and Patent Box process.