Patent Box

Since April 2013 the Patent Box has enabled eligible companies to pay a lower rate of UK corporation tax (down to just 10% by 2017) on worldwide profits earned from their patented inventions. The purpose of the Patent Box is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products in the UK.
Who will qualify?

To benefit from the Patent Box a company must hold a qualifying IP right. Individuals and partnerships do not pay corporation tax so they cannot benefit.

 

The company must also have undertaken qualifying development by making a significant contribution to the creation or development of the patented invention, or a product incorporating the patented invention. Companies that hold an exclusive licence under a qualifying IP right can also benefit from the tax relief in some circumstances.

What is a qualifying IP right?

Patents granted in the UK, by the European Patent Office and in some other EEA countries are qualifying IP rights for the purposes of the Patent Box regime.

What income is covered?

The Patent Box covers worldwide income (not just in the country where the patent is granted) from one or more of the following activities:

 

  • The sale of patented products
  • Licensing, e.g., license fees or royalties
  • Income derived from infringement or alleged infringement of the IP right
  • Commercial exploitation of the IP right, e.g., carrying out a patented process or method – but only on the basis of a calculated notional royalty

 

Provided you file an election at HMRC, the Patent Box can apply to income arising while a patent application is pending, with relief being given when the patent is finally granted.

Aren’t the Patent Box rules changing?

Yes. There will be changes to Patent Box from June 2016 to ensure that it is consistent with new international standards proposed by the OECD to address Base Erosion and Profit Shifting (BEPS). The new Patent Box scheme will adopt the so-called “modified nexus approach” under which any benefit will be linked to the proportion of R&D expenditure incurred by the UK company to develop the IP asset relative to the total R&D expenditure incurred. If you have developed the product in-house in the UK this should not affect your entitlement to the tax relief but we are waiting to see what additional documentation of the expenditure will be required.

I’m considering filing a patent application to benefit from the tax relief, what should I do next?

If you are developing new products or processes and would like to know if they can be patented to enable you to take advantage of the Patent Box, please contact us to arrange a free “Innovation Audit”.

Where I can get more information?

If you have any questions about the tax-related aspects of the Patent Box then you should contact your accountant or tax advisor. You might also like to ask your accountant or tax advisor about R&D Tax Credits.

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If you are an accountancy professional needing more information about the Patent Box or up to date IP advice for your clients, please get in touch with us for a free initial discussion.