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Patent Box – Signpost

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Patent Box – Signpost

Overview of the Patent Box

The Patent Box was designed to encourage the development, marketing and retention of innovative products within the UK economy.

It provides for a 10% rate of corporation tax for relevant qualifying profits.

For example, a company with £100,000 profits chargeable to corporation tax would previously have paid £19,000 in tax.  If those profits wholly fall within the Patent Box, this could be reduced to a £10,000 tax bill – a significant tax saving.

What qualifies for Patent Box?

To qualify, companies must demonstrate that they not only own or have an exclusive licence for an innovation but that they have also developed the innovation by having been significantly involved in its origination or by having developed a product in which it is incorporated.

Qualifying companies must hold intellectual property rights conferred by the grant of a patent from the UK or EU patent offices or certain other qualifying countries. Plant variety rights, supplementary protection certificates and innovations which have formally met the criteria for a patent but for which the patent has not yet been granted can also qualify.

Once an election is made, worldwide relevant profits arising from the IP are included with specific rules governing the computation so as to exclude routine profits and fairly apportion income related to the innovation. The relief is given when the income is recognised and the patent must be in force at that time. Offsets of negative patent boxes against other relevant IP are allowed and transfer pricing issues may arise within groups.

For those companies which provide a service generated from an innovative patented process, a notional royalty scheme exists to bring the innovation within the regime.

Accessing the relief

With the significant tax benefit available to company profits falling wholly or partially within the regime, it is more important than ever to properly register and recognise innovative processes or products within a business.

Patent registration costs, usually relating to what is an intangible asset, are now much more readily understood for their longer term financial benefits and this isn’t just a relief for the big Pharma companies.

Small and medium sized enterprises with an invention at the core of their service or product line are likely to qualify provided the innovation is subject to a current patent and all businesses should regularly scrutinise their portfolio with the help of their advisers to make sure they are deriving maximum tax value from their intangible assets.

Detailed articles on Patent Box

An overview of Patent Box

What and who qualifies for Patent Box

Calculating Patent Box relief

The Standard Calculation

Streaming Calculation

 

If you have any queries about this article, or any tax matters, then please do get in touch.

 

 

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