If the UK is to meet its net-zero carbon emissions target by 2050, then green stimulus incentives are very much needed, but are the existing schemes working to their full capacity?
Initiatives such as the R&D tax relief and Patent Box schemes were created to encourage innovation across all business sectors by respectively providing tax relief for companies conducting R&D activity, and by offering a 10% reduction in corporation tax for Intellectual Property (IP) that is patented in the UK.
However, statistics released by HM Revenue and Customs (HMRC) detailing claims on the R&D tax relief schemes in 2018-19 show that the energy sector only accounted for 160 claims totalling £20 million. In comparison, the manufacturing sector made 14,000 claims worth £1.47 billion in the same period. HMRC figures for the Patent Box scheme for energy companies the same period were so low they didn’t even register.
The reason why the number of energy companies claiming relief is so low is unclear. It could be that energy companies are growing the sector by building new infrastructure, such as wind farms, using existing technology which has already been tried and tested; there is no need for developing new methods. It could be that any innovation that is happening is taking place in other sectors in the supply chain, such as manufacturing or engineering, or else it could be that in this global sector the innovation is happening overseas and imported into the UK.
However, another more troubling explanation is that companies cannot identify what qualifies as R&D, and as such do not realise they are eligible for tax relief. Figures from GovGrant’s Innovation Nation 2020 research show that 56% of UK SMEs think innovation is either something that happens every now and again, is very rare, or always represents a big leap forward. This is not the case; any development that shows incremental change or improvement in a process, method, or technology among other things constitutes innovation, but being too close to the work often means experts struggle to see the wood from the trees.
It is also possible that companies think the patenting process is too expensive and lengthy to be worthwhile. To overcome that, the mindset must be shifted from using a patent for protection to one of commercialisation. The Patent Box scheme has been specifically designed for this, and in reality, the tax relief potentially covers any cost incurred.
In any case, the energy sector could be missing out on these existing schemes which suggests that the sector is not getting maximum return on investment from its IP and will have less to reinvest in further development.
The truth is that companies may be doing more in the way of innovation than they think, so seeking advice is crucial. Specialist agencies like GovGrant can provide clarity for firms operating in the energy sector by helping them identify IP, understand what constitutes R&D, and explain how to utilise these tax incentivising schemes in order to commercialise their innovations.