Your Tax Relief Partners

Introduction

For many UK businesses, tax relief opportunities are often approached in isolation. R&D Tax Relief, Patent Box, Embedded Capital Allowances and succession planning structures such as Employee Ownership Trusts are closely linked in practice, but are rarely considered as part of a single strategy.

Taking a coordinated approach can improve outcomes in terms of both tax efficiency and long-term planning. It also ensures that opportunities are identified early, rather than being addressed retrospectively.

At Lexmore, the focus is on providing clear, technically accurate and commercially practical advice across the core reliefs available to innovative SMEs.

1. R&D Tax Relief: Supporting Technical Development

R&D Tax Relief is designed to support companies undertaking scientific or technological development.

To qualify, a company must be seeking an advance in science or technology and resolving scientific or technological uncertainty. This applies across a wide range of sectors, particularly engineering, manufacturing and technology.

Common qualifying activities include:

• Developing new or improved products
• Engineering processes or prototypes
• Designing and testing software systems
• Improving manufacturing techniques
• Resolving technical performance challenges

HMRC guidance: R&D Tax Relief: the merged scheme and Enhanced R&D Intensive Support.

From April 2024, most companies claim under the merged R&D scheme, which provides:

• A 20 percent credit on qualifying expenditure
• An effective benefit of around 15 percent for companies paying the 25 percent Corporation Tax rate

Claims must now be supported by clear technical narratives and accurate financial breakdowns, with HMRC placing increased emphasis on compliance and evidence.

2. Patent Box: Rewarding Commercialised Innovation

While R&D Tax Relief supports the cost of development, the Patent Box applies once that innovation begins to generate profit.

The Patent Box allows companies to apply an effective 10 percent Corporation Tax rate to qualifying profits derived from patented inventions.

This is particularly relevant for businesses that:

• Successfully bring new products to market
• Develop proprietary processes or systems
• Generate income from intellectual property

HMRC guidance: Corporation Tax: the Patent Box.

In practice, businesses that carry out R&D often become eligible for Patent Box at a later stage once their innovation is protected and commercialised.

If You Do Not Yet Have a Patent

If your business is developing something that could justify patent protection, but you do not currently have a patent in place, it is worth addressing this early.

We can introduce you to a trusted patent attorney partner who can:

• Assess whether your innovation is patentable
• Guide you through the application process
• Help ensure the structure aligns with future Patent Box eligibility

Taking this step early can support both intellectual property protection and long-term tax efficiency.

3. Embedded Capital Allowances: Unlocking Value in Property

Embedded Capital Allowances relate to fixtures and fittings within commercial property.

These are assets that form part of a building’s functional infrastructure, rather than being standalone plant and machinery. Typical examples include:

• Electrical systems and lighting
• Heating, ventilation and air conditioning systems
• Water systems and sanitary installations
• Lifts and other integral features

In many cases, these costs are not separately identified within a property purchase or refurbishment project. As a result, qualifying expenditure can remain unclaimed.

This is particularly relevant where a business has:

• Purchased a commercial property
• Undertaken refurbishment or fit-out works
• Not previously reviewed historic capital expenditure

A detailed review can identify and apportion qualifying assets, allowing businesses to claim relief on expenditure that would otherwise remain embedded within the overall property cost.

4. Employee Ownership Trusts: Structuring Succession

Employee Ownership Trusts provide a structured approach to business succession.

They allow owners to:

• Sell a controlling stake in the business
• Maintain operational continuity
• Transition ownership without relying on an external buyer

Government guidance: Employee ownership.

For many owner-managed businesses, particularly in engineering and manufacturing, this provides a practical alternative to trade sales or private equity transactions.

While the tax position has evolved in recent years, EOTs remain a widely used structure for balancing financial value with long-term stability.

5. Why a Joined-Up Approach Matters

In practice, these reliefs are closely connected.

A typical progression may involve:

• R&D activity leading to the development of new technology
• Intellectual property emerging from that work
• Patent protection being secured
• Patent Box applying once profits are generated
• Capital investment supporting expansion
• Ownership transitioning through an Employee Ownership Trust

Without coordination, businesses often miss opportunities or approach these areas too late.

6. The Importance of Compliance

HMRC has increased its focus on:

• Technical accuracy
• Financial clarity
• Evidence-based claims

This is particularly relevant for R&D Tax Relief, where:

• The Additional Information Form is mandatory
• Advance notification may apply
• Enquiry rates have increased

HMRC guidance: Submit detailed information before you claim R&D Tax Relief.

A structured and compliant approach is essential across all areas of tax relief.

7. What Businesses Should Do Next

Businesses should consider:

• Whether they are undertaking qualifying R&D activity
• Whether intellectual property is being developed and protected
• Whether property-based expenditure has been fully reviewed
• How succession planning aligns with long-term objectives

Taking a joined-up approach ensures that tax relief supports business strategy rather than being treated as a standalone exercise.

Lexmore’s View

Tax reliefs are most effective when considered together.

For businesses investing in innovation, property and long-term growth, the interaction between R&D Tax Relief, Patent Box, Embedded Capital Allowances and succession planning is where the greatest value can be achieved.

A structured and compliant approach ensures these opportunities are identified and applied effectively over time. If you work with an existing accountant, our accountancy partnership programme allows specialist support to be added without disrupting that relationship.