Patent Box Incentives

A simple equation: patent box profits + election = up to 47% reduction in tax bill

By electing in to the Patent Box, an innovative company can achieve a significant long-term reduction in its corporation tax bill.

weekes-stuart partnerStuart Weekes

Tax Partner

We would welcome a simplification of the rules and the removal of one of the two sets of Patent Box incentive rules.

Very few companies are taking advantage of Patent Box incentives, which tax the profits from patented products at 10%, a nine percentage point discount on the current 19% rate of tax. Many companies do not know about this and, for those that do, the complexity of the legislation has been a major barrier to making a claim.

I hope that this Budget will be an opportunity to revisit the Patent Box rules. The rules changed a couple of years ago because other EU countries were concerned that this gave the UK a competitive advantage. Once the UK exits the EU, will the government improve the benefit of the Patent Box, especially as the UK Corporation Tax rate will drop to 17%, making the margin for the Patent Box less attractive than it might otherwise be? Will this prompt a cut in the applicable Patent Box tax rate from 10% to 8%?


Businesses: 5 reasons to elect in to the Patent Box

  • Patent Box profits are currently taxed at 10%, a 9% discount on the 19% rate
  • The discounted tax rate can be applied to all future profits attributable to the patent
  • To improve the company’s cash flow
  • To make the company’s balance sheet look healthier
  • To increase the company’s reserves

What we do

Not just:
  • help identify Patent Box opportunities
  • prepare Patent Box calculations
  • deal with HMRC queries
But also:
  • advise how to maximise the Patent Box profits
  • help set up internal procedures to capture Patent Box data

Could my company benefit?

Yes

  • created or significantly contributed to the creation of a patented invention
  • performed a significant amount of activity to further develop a patented invention
  • performed a significant amount of activity developing a product or process incorporating a patented invention

No

  • sales and marketing of fully developed products
The Patent Box tax incentive is one of a number of measures to encourage innovation and is potentially one of the most generous tax incentives ever introduced in the corporate arena. It applies to innovative high tech companies and to companies that develop and use patents in their trade, such as manufacturing.


Companies, including corporate partners and joint venturers, electing into the Patent Box can apply a reduced corporation tax rate to profits generated from some of their patents provided these have been registered at one of the accredited patent offices.These include the UK Intellectual Property Office, the European Patent Office and the patent offices of certain European Economic Area states.The rate of corporation tax applicable to Patent Box profits is currently 10% compared to the main rate of corporation tax of 19%. Prior to 1 April 2017, the rate was 11% and the main rate of corporation tax was 20%.It applies not only to the worldwide sales of certain patented items, but also to the worldwide sales of an item which incorporates a patented component (e.g. the brake pads in a car) provided it is covered by at least one qualifying patent, whether or not it is also covered by other non-qualifying patents. The Patent Box also applies to deemed royalties arising from patented processes.

  • Does your company sell any products that incorporate at least one patent registered with an accredited patent office?
  • Has your company been granted any exclusive licences to exploit a product or process covered by at least one patent registered with an accredited office?
  • Does your company receive any licence fees or royalty income from the rights the company has granted out of qualifying patents it has developed?
  • Has your company received any income from the outright sale of its qualifying patents?
  • Has your company received any income from the infringement of its qualifying patents?
  • Is your company part of a group of companies with patents held by one company but developed or exploited in another group company?

If the answer is ‘yes’, then you might be able to take advantage of the Patent Box regime.

patent-box-flowchart


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Prosperity through technology in the post-Brexit era

Corporate
The government have announced a number of measures to support innovative technology businesses.
22 Nov, 2017
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