Failure - the fuel of innovation

The UK Space sector is growing. The advances being proven in space technology compete with the fantastical ideas created in movies. Innovation is taking place everywhere.

There have been recent headlines about the unsuccessful launch from Spaceport Cornwall of a LauncherOne rocket. If successful this would have been the first rocket launched from the UK.

The rocket, attached below one wing of a jumbo jet, was to be dropped above the Atlantic and, powered by its own engine, it was intended to release a payload of small satellites into the Earth’s orbit. Unfortunately, the second stage did not reach its planned altitude so the satellites were not released.  However, the safety and regulatory regimes set up worked well and demonstrate a leap forward in the UK’s readiness for a national launch capability.

Due to ongoing investment in innovation and research and development (R&D) into component size and associated technologies, satellites have significantly reduced in size. Now satellites the size of shoeboxes and washing machines are orbiting the Earth. The UK has invested time, energy, and skills into the space sector and is experienced and very good at developing and building small satellites, but until recently the UK space sector has had to travel overseas to launch satellites into orbit.

The satellites scheduled to launch in November formed part of the Satellite Applications Catapult’s (SACL) In-Orbit Demonstration (IOD) programme. This helps UK businesses without a background in the space sector to rapidly develop and deploy satellites into orbit. SACL’s focus is working with businesses from many different sectors such as health, logistics, and agritech to explore how satellite technology can be harnessed to benefit activities on Earth. This may include increasing surveillance capabilities to identify illegal activities or to enable in-orbit manufacturing in a purer environment. The potential capabilities are seemingly endless and perhaps are limited by imagination.

Innovation is at the heart of the space and satellite technology sectors. Innovation takes the thread of an idea and seeks to make it a reality and to understand whether there is real commercial or societal benefit. At its core, innovation fuels and is fuelled by uncertainty. At the cutting edge of innovation is the unknown, that lack of knowing whether something will be successful. Innovation requires a leap of faith to try and understand whether the R&D and investment of time, energy, effort, and emotions were successful.

Innovation involves failure. The mark is not whether something fails but how someone approaches failure. Is it seen as the conclusion of something or the opportunity to learn more – to push the boundaries?

The UK government knows the value of innovation. For many years the government has invested public funds into innovative companies, whether this is by way of grants or support for companies claiming research and development tax credits. The government has a stated aim that total public and private sector R&D spending will be 2.4% of GDP by 2027.

Failure does not prevent a company from claiming R&D tax credits. Project failure might even be a strong indicator that the company’s competent engineers are advancing science or technology. This is a fundamental principle that a company must follow to qualify for R&D tax credits.

R&D tax credits are really valuable for companies. Profit-making companies eligible for the SME scheme can currently benefit from around £25,000 for every £100,000 of qualifying expenditure, whereas those eligible for R&D Expenditure Credits (RDEC) can benefit from £10,500. Loss-making companies can also benefit. From 1 April 2023, changes are being made to these schemes. They broadly neutralise the increase in the main rate of UK corporation tax, but the changes do make the RDEC scheme more attractive. The changes also focus the benefit on R&D activity carried out in the UK, and reflecting the costs of modern businesses - cloud computing and data costs will be allowable.

Further changes are expected. The government is consulting on whether to close the existing schemes and introduce a single scheme for all eligible companies.

R&D tax credits continue to be central to the government’s agenda for innovation in the UK. Innovative companies, even those that experience failure, should speak with a specialist and explore whether they can benefit from these valuable tax credits.

Crowe’s experienced R&D Team would be delighted to start the conversation with you. Please get in touch on 0118 959 7222 or contact Stuart Weekes.

This article was first published by The Business Magazine in March 2023.