Patent Box can exempt up to 47% of Patent Profits from Corporation Tax
Businesses who own and exploit qualifying patents, or hold exclusive licences over qualifying
patents, can qualify for a proportion of those profits to be exempt from Corporation Tax. The rules apply to all UK companies that have qualifying patents and applies to the profits from all of the worldwide income received by that company from the patent.
The Government introduced Patent Box to encourage the development of intellectual property and the exploitation of that intellectual property in the UK, where that intellectual property is recognised in the form of a qualifying patent. Any company that is undertaking research and development that results in a new product or process should consider whether this can be patented and if Patent Box would benefit them.
The rules were introduced in April 2013 but underwent a significant change from 1 July 2016 which could restrict the benefit for some businesses. The new rules place certain restrictions on which companies undertook the research and development that the patent is derived from or is used in applying the patent. A company that currently holds a patent could be under either the original Patent Box regime or the Revised Patent Box regime or both.
It should be noted that a company that has made claims for additional tax relief due to research and development will keep all of the benefit of these claims and can benefit from the exemption to tax of Patent Profits that Patent Box provides as well. Hence an innovative company that develops both the new product and obtains a patent can achieve a very low effective rate of tax depending on their circumstances.
To qualify the UK company must hold a qualifying patent, that is one that is issued by the UK
Intellectual Property Office, the European Patent Office or one of 13 specified EEA countries. In addition the company or a group company must have undertaken the research and development that lead to the creation of the patented product or in applying the patent to the development of a new product.
A company with a qualifying patent can then claim Patent Box relief in respect of profits arising from income in any of the following categories:
- Sale of a patented product
- Sale of a product incorporating a patented product
- Licence fee and royalty income
- Sale of the patent
- Awards for damages and compensation for infringement of the patent
However it can take time for a patent to be granted and provided that you have elected into the patent box regime when the patent is applied for then the profits arising from the period up to the grant of the patent can also potentially qualify for the relief in the year of grant.
You have to elect in to the Patent Box regime within 2 years of the end of the first accounting period that you wish it to apply from.
The new regime has additional restrictions that can hit a company where the research and
development, the patent and exploitation of the patent are in different companies and therefore structuring of the process and risk management are essential in maximising the benefit available to this relief.
How can we help?
This is a valuable relief that can significantly enhance the cash flow and value of a company. Our experienced Patent Box team can advise on the detailed application of the Patent Box rules under both the original and the revised regime and how these would impact on your company.
We will help you structure the business to maximise the claims available, advise on putting systems in place that identify and record the relevant income streams from the qualifying patents to ensure that all qualifying income and profits are identified to maximise the possible relief.
Should you need assistance with Patent registration then we can introduce you to relevant Patent Attorneys, although any patent application should be made before the product is first marketed.