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% since 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.
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 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. It can be any of the following kinds:
- Income from selling patented products
- Fees or royalties from licensing the patented invention
- Compensation paid by infringers of the patent
- Notional royalties for using the patented process or apparatus in your own business
Provided you file an election with 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.
Didn’t the Patent Box rules change?
Yes. The new Patent Box scheme commenced on 30 July 2016 and adopted 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 you do need to keep proper records of your expenditure.
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?
Visit our resources section here. Or, 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 them about R&D Tax Credits.
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.