With the Government striving for the UK to be a global hub for innovation by 2035, now is a perfect time for businesses to adapt, embrace and encourage research and development in the workplace.
The UK Innovation Strategy lays out four pillars in its plans for spiralling business innovation – each with the overarching aim of placing innovation at the heart of everything this nation does. It goes without saying that the UK has a rich innovation legacy on which to build, and there is plenty more where that came from . Leslie Maloney, tax specialist at Access2Funding, looks at some pivotal examples of innovation, the advantages of business innovation and ways in which businesses can fuel innovation.
What is innovation?
There are all sorts of definitions of innovation – and what’s key here is that business innovation does not just mean invention but rather the ways businesses create and apply new technology, materials, methods and products that open up opportunities for advancements within sectors. Schumpeter’s business cycle theory of innovation suggests that innovation in business is the major reason for increased investments and business fluctuations, stating innovation as changes in production methods, production of new products and opening up of a new market.
Going back to the Innovation Strategy, here innovation is defined as ‘the creation and application of new knowledge to improve the world’.
There are several different types of innovation, which can lead to confusion amongst business owners. However, one type to note is ‘breakthrough innovation’, or ‘disruptive innovation’. This kind of innovation is focused on the birth or application of revolutionary technologies – and it is this innovation that often qualifies for HMRC’s research and development (R&D) tax credits.
What are the benefits of business innovation?
In a nutshell, businesses that innovate grow twice as fast as firms that don’t . Business growth is critical to maintaining competitive edge, improving productivity and meeting client expectations. Innovation can involve creating new products and services, reducing costs for clients by way of improved efficiency or enabling companies to achieve a greater market share, in turn leading to improved profitability.
An innovative project involves something new, and this helps differentiate one business from another. Businesses can also experience improved brand awareness for what they’ve achieved, contributing to an increased turnover.
During the innovation cycle, business owners and their employees will seek to solve a problem or overcome a challenge, and this facilitates creativity, allowing for fresh idea generation and strategy.
What’s more, innovative businesses can also claim a reward for their innovation efforts via the government’s research and development (R&D) tax relief scheme. This initiative was designed to encourage UK-based limited companies to invest in innovation. R&D tax credits support projects that seek to improve or overcome scientific or technological uncertainties within their industries. The projects don’t need to have been successful either, as long as the research and development, and risk-taking innovation, is evident. Once a business has successfully claimed R&D tax credits, many businesses reinvest the money received into the business to fund further innovation, use it to employ more staff or purchase new machinery. Alternatively, the claim amount can be deducted from a business’s corporate tax bill.
HMRC states  that to be eligible for R&D relief a business needs to explain how a project:
- looked for an advance in science or technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worked out by a professional in the field.
Examples of business innovation
The UK is home to innovators that have created many firsts – the first reflecting telescope by Isaac Newton in 1668, the first steam-powered engine by Thomas Newcomen in 1712, the first vaccine created by Edward Jenner in the 1970s, and the introduction of the world wide web in 1989 by Tim Berners-Lee. These are examples of innovation that changed and helped shape the world, yet innovation can be much simpler, too. Perhaps you are an engineering firm that has developed a new way of doing something as a result of experiencing technical problems onsite. You may have developed a new solution for the industry, which was not readily available within the sector. Or, perhaps you run an architectural practice and have used modern technologies to problem-solve.
How can I fund business innovation?
A lot of innovation can occur reactively when a business is overcoming a challenge during a project, and for these types of reactive innovation, R&D tax credits are available as a reward from HMRC and can be used to fund future innovation. But what finance options are available for the light bulb moments? It is important that businesses can access the funding they need at the right stages in the innovation journey. Grant funding, seed equity, innovation loans and later venture and institutional capital, and debt finance, are all options that businesses should consider.
What technologies are driving business innovation?
Industry 4.0 – or the Fourth Industrial Revolution – has allowed for more business innovation within sectors including manufacturing, engineering and construction. Technology such as artificial intelligence (AI), smart technology and machine learning has streamlined processes for businesses, leading to increased productivity and, often, innovation within process improvement and testing and software development.
Meanwhile, whilst the UK has set a world-leading net zero target to end our contribution to greenhouse gas emissions by 2050, innovation has been present in the deployment of a wide range of low-carbon technologies. Continued innovation will be crucial to tackling climate change, from early-stage R&D to implementation of technology at scale.
Digital innovation has been instrumental in transforming the NHS, through the use of digital technology, most recently in supporting the pandemic, including delivering digital services for NHS Test and Trace and running the Technology and Data workstream for vaccinations.
Expenditure on research and development (R&D) performed by UK businesses grew by £822 million to £25.9 billion in 2019, which was an increase of 3.3% and was the lowest rate of growth since 2012.  Pharmaceuticals was the product group that had the largest growth in expenditure on R&D. The government’s long-term plan for delivering innovation-led growth, along with awareness of funding options available, will be catalysts in ensuring that businesses across all sectors nurture and invest in innovation. If businesses build their own company culture of innovation then the UK will be sure to meet its target of being a global hub for innovation by 2035.
Is your business innovating? Find out if your business is eligible for R&D tax credits by emailing email@example.com or calling 0333 990 0125.