Championing innovation in artificial intelligenceChampioning innovation in artificial intelligence
Continued innovation in AI is key in driving further economic growth and prosperity. And there is government funding baked into the Budget to support and encourage this, namely R&D tax credit schemes and the Patent Box scheme
May 27, 2021
In recent years, artificial intelligence (AI) has risen increasingly higher on the agendas of the world’s biggest businesses.
The earliest adopters have traditionally been IT and telecoms firms, with 81% using AI– just ahead of financial services firms (78%) and consumer goods and retail (75%).
Research shows, that by the end of 2021, 97% of large companies will be deploying AI in one form or another.
The development of AI has undoubtedly transformed life as we know it – in many cases, it replaces direct human involvement, making routine processes more accurate and efficient. From humanoid robots to online shopping, the use of AI touches almost all walks of life and is raising important questions for society, the economy and governance.
Continued innovation in this area is key in driving further economic growth and prosperity. And there is government funding baked into the Budget to support and encourage this, namely R&D tax credit schemes and the Patent Box scheme, created to encourage innovation across businesses 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, to make the most of these schemes, businesses responsible for the development of AI must recognise how innovative they truly are. Some aspects are clearly innovative – no one is going to question the R&D involved with developing robotics, for example. But there are also much more subtle innovations in AI and software that happen frequently, and often get overlooked. This becomes a problem when it causes the business to miss out on claiming well deserved funding for innovative activity under the aforementioned schemes.
To fix this, there are two main issues to address. Firstly, we need to make clear that businesses developing AI are likely to be eligible for funding so should take it seriously and not treat it as a tick box exercise. HM Revenue & Customs (HMRC) does not have a separate classification for AI and robotics. Instead, it is considered part and parcel of any sector that is looking to drive automation and increase productivity. This means that any business that is developing AI or software can likely make a claim for innovation, not just those that are purpose built for AI R&D. This also ties into the second issue: there is too much confusion around what constitutes innovation.
Contrary to popular belief, often the smallest change to a product or process can be considered significant innovation. For AI in particular, a typical claim can range from software development, creating efficiency in a process, or improving data analytic tools. It’s all about creating an advance from the current baseline capability.
Tax credits provide businesses with an immediate cash boost in return for their hard work, while fuelling further innovation and driving longer-term growth for both the businesses and the economy. It is an opportunity these companies can ill afford to miss, particularly as we seek to ‘build back better’ from the impacts of the COVID-19 pandemic and to bolster the strength of the UK as a nation independent of the EU.
Indeed, an assessment made by HMRC shows the R&D tax credit scheme can accurately show ROI – for every £1 forgone in tax, we see a return ranging between £1.75 and £2.28 for the UK economy.
While R&D tax credits are vitally important to strengthening both businesses and the economy, it’s only half the picture if R&D is not followed through to the Patent Box stage. Data from HMRC last year, showed that while £5.3bn was claimed in R&D tax credits in 2017-18, only £1.1m was claimed under the Patent Box scheme, proving intellectual property (IP) is not being commercialised in the way it should be. By stopping short of using patents to commercialise their work, businesses are supressing the true value of their IP. We have to change this narrative. Almost all R&D carried out will create some residual IP value, and it should be used to improve margin, sell more or engage better with potential clients.
Given AI is set to create more than 7m new UK jobs in healthcare, science and education by 2037 – it’s in businesses best interests to make effective use of R&D and IP a priority if we are to shape a future for the UK that boasts high levels of employment, investment, skills and economic growth.
Luke Hamm is CEO of GovGrant, the R&D and IP specialists.
GovGrant is committed to helping innovative business make the most of their R&D and Intellectual Property. Our one and only business focus is to offer our clients the maximum potential benefit from the incentives available to them. If you would like to find out more, get in touch with our specialist team today by calling 01727738600 or getting in touch through our web form.
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