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How do Knowledge Transfer Partnerships affect R&D tax relief?

1st Apr 2022
Brought to you by
myfirmsapp

Myriad Associates helps businesses maximise tax reliefs.

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When companies and academic institutions work together great things can be achieved. Knowledge Transfer Partnerships (KTPs) give businesses the chance to collaborate with academic or research bodies in working on cutting-edge innovative projects.

Here we look at KTPs in more details, and how such partnerships work alongside R&D Tax Credits.

What is a Knowledge Transfer Partnership (KTP)?

A Knowledge Transfer Partnership (KTP) is a scheme that’s designed to help businesses be more competitive by benefitting from external academic expertise. Fresh technical knowledge and insight usually comes by partnering with a college or university - that’s what KTPs are about.

KTPs are formed when two partnership organisations come together and a highly-trained individual is transferred to assist on a specific new project. So the applicant company - “the business” - is the one looking for the assistance, and the “knowledge base” is the college, university or other academic that’s providing a suitably skilled graduate or other expert. This graduate or expert has all the necessary skills, education and training to lead the project and have a real, positive and measurable impact.

The company also doesn’t hire the person directly. Instead, the academic institute will employ them, but arrange for them to carry out work for the company for the duration of the KTP project. Having said that, many companies often then take on the graduate/expert in a permanent role.

How are Knowledge Transfer Partnerships set up?

Any UK-based business can apply for a Knowledge Transfer Partnership regardless of size.

Each KTP must consist of a UK-based academic or research organisation, a business and an “associate” (a suitably qualified graduate). The graduate also needs to be able to lead a business project strategically.

Academic institutions tend to have a KTP office that’s dedicated for to this purpose. This acts as a facilitator for academic and business partners to come together.

How do KTPs work financially?

The business will receive a grant to fund the scheme in part, but a contribution must also be made towards the cost of someone to supervise the scheme, and the salary of the associate. How much a business needs to contribute depends on its size.

According to the Gov.uk website, SMEs contribute around a third of project costs (around £35,000 a year). Large businesses expected to contribute around £55,000 a year, or approximately 50% of the cost of the KTP.

The contribution a business makes is paid directly to the Knowledge Base organisation (which is the academic organisation they’re partnering with). This arrangement is considered to be third-party expenditure for R&D, which means the eligible cost is capped at 65%.

There is however one way around this arrangement. That is, the business can instead decide to regard the Knowledge Base as a connected party (the consent of the academic organisation does need be sought with this). This then removed the 65% cap., something which requires the consent of the academic organisation. If taking this path, costs are no longer capped at 65%. Additionally, it may lead to a higher rate of return on expenditure in comparison to claiming for the KTP cost as unconnected.

Interested businesses can apply for a KTP either by using a local Knowledge Transfer Adviser, or via the KTP Office of an academic or research organisation.

Can R&D tax relief be claimed on KTPs?

R&D tax relief, administered via the R&D Tax Credits scheme, is a highly generous UK government tax incentive designed to encourage company innovation.

It works by giving companies as much as 33% of their eligible R&D costs back, either as a reduction in their Corporation Tax or as a cash lump sum. The scope of R&D projects and expenditure that can attract the relief is purposefully extremely broad, and all companies of regardless of size or sector can apply.

The further good news is that as long as the KTP project qualifies as R&D, then the costs incurred by the company in the partnership can be included in an R&D tax relief claim.

Only state-funded grants can affect an R&D tax relief claim if the grant is classified as notified state aid. Ultimately this can reduce the amount of R&D tax relief a company can claim. Lucky, Knowledge Transfer Partnership are not typically considered to be notified state aid, which is why there’s no effect on any subsequent R&D tax relief claim. However, it’s strongly worth reminding any clients who are interested in a possible KTP arrangement to seek professional R&D funding advice. Each individual arrangement is unique and an experienced R&D consultancy will be able to advise your client on the best way forward.

Knowledge Transfer Partnership or R&D?

Both KTPs and R&D Tax Credits offer innovative companies the chance to expand their R&D horizons.

Whether it’s launching a brand new product, service or process, or substantially upgrading an existing one, there’s financial help out there designed for this purpose.

If you would like to understand more about R&D funding options and help get your clients’ innovative ideas off the ground, feel free to speak to the Myriad Associates team on 0207 118 6045. You can also send us a message and we'll call you back.

Don't forget to also take a look at our recent article: 5 Excellent Reasons To Work With An R&D Tax Relief Consultancy.