Innovative Dragon is a great example of how SMEs should be using the HMRC R&D tax relief scheme to better reward themselves when investing in new products and processes.

The innovation firm spent four years and more than £1 million developing a new mobility system, called Flait (left of picture). Previously it created e-scooters and the ID-Taxi, an electric car with a range of 400km.

Innovative Dragon — based in central London but with offices in Düsseldorf, Germany, and Shanghai, China — first invented an electric car in 2012 and delivered the prototype to Beijing. By 2016, the company had developed electric scooters and Flait.

Managing Director Ina Fischer runs the company. Her husband, Herwig Fischer, invents products and handles technical development. Their son Gerrit Fischer acts as a project manager.

The firm got a boost recently thanks to an R&D tax relief claim that earned the company an injection from the Government of £111,393.

Ms Fischer was initially sceptical that she would be able to claim tax relief from HMRC. However, R&D tax relief firm, Catax, was able to successfully demonstrate to HMRC that the R&D met the necessary criteria, and substantial tax relief was approved.

R&D tax relief was introduced by the government in 2000 to incentivise innovation, and result in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

Many firms don’t realise the work they do qualifies as R&D, which is defined as any work that seeks to resolve a scientific or technological uncertainty, whether that’s a new process, product or service. Crucially, R&D work does not need to have been successful to qualify and claims can be made up to two years beyond the end of the tax year in which the work took place.

Most of Innovative Dragon’s claims through Catax related to inventions that went into the ID-Scooter and ID-Taxi. Work on the ID-Taxi included a new electric mechanism for the gull-wing doors and design of the carbon-fibre body, which is made of only seven pieces.

It also took huge amounts of work to develop the ID-Scooter’s new suspension system and perfect its modular design, which allows users to swap from a two-wheel to three-wheel system.

Innovative Dragon Managing Director Ina Fischer, said: “My husband had come up with the ideas for an urban mobility system with autonomous driving vehicles now called Flait in 2016, and we spent almost all the money we had made up to then to develop the system, to build prototypes and to get international patents.

“When it came to our tax claims, we realised we needed a specialist and were introduced to Catax. They fought like hell for us and our claim. We laid it all on the table in a meeting with HMRC and a solution was found. We were very happy with that."

Mark Tighe, chief executive of R&D tax relief specialists Catax, added: “We’re so happy that we could help Ina with this claim. Innovative Dragon are the perfect example of how R&D tax relief can unlock valuable injections of capital when a company’s activities are examined in detail.

“The R&D tax relief scheme is actually quite generous and that’s really the point. The Government wants companies to use it and keep on innovating, and we’re sure that’s what Innovative Dragon will continue to do.

“The sums available can make all the difference to SMEs carving out a name for themselves in new markets and with new, improved products.”