UK Patent Box: Tax Relief for Innovative Companies
The patent box has been introduced to encourage innovation in the UK economy. It provides a significant opportunity to reduce corporation tax and is available in addition to research and development (R & D) tax credits. Here we explain what the patent box is, how it might benefit you, and how Miller Sturt Kenyon can assist you to take full advantage of it.
What is the patent box?
The patent box is an opt-in scheme introduced by the UK government on 1 April 2013 to encourage the development of patented technologies in the UK, in turn encouraging growth in the economy. The scheme provides tax relief to innovative companies by reducing the corporation tax applied to profits derived from patented inventions.
The reduction in tax rate will be phased in gradually over the next four years, starting with a reduced tax rate of 15% currently and arriving at a rate of 10% on qualifying profits from April 2017. This compares with the current standard corporation tax rates of between of 20-23%.
Qualifying profits can result from worldwide sales of a product (even if the product is only covered by a UK patent, for example), licensing revenue, damages from infringement of a patent or sale of a patent.
How can my company qualify for the patent box?
Companies that are liable to corporation tax and that make a profit from patented inventions can benefit from the patent box. In order to qualify for patent box tax relief your company must meet two requirements:
the company must own or have an exclusive licence on a qualifying patent, and
your company must have been involved in development of either the patented invention itself or a product or process incorporating the invention. Alternatively, another company in the group can meet this requirement so long as your company plays an active part in managing the qualifying patent.
What is a qualifying patent?
Any granted patent issued by the UK patent office or the European patent office is a qualifying patent. Qualifying patents may also be issued by the patent offices of thirteen other countries in the European Economic Area.
Once a patent has been granted, the patent box tax relief can be applied retrospectively to profits obtained in the period between filing the patent application and grant (up to a maximum of 6 years and excluding any time before introduction of the scheme).
How can I obtain a qualifying patent?
We can assist you with obtaining patents and with licensing or otherwise exploiting any existing patents that you have. We can also assist you with identifying ideas developed in your company that would be suitable for patent protection.
What proportion of profit does the patent box apply to?
In broad terms, the reduced tax rate under the patent box scheme applies to profits that are derived from patents. Calculating the proportion of profits that are due to patent protection can be complex, especially where a group of associated companies is involved, but a brief outline of the process is given below:
1. Calculate income arising from activities relating to patented inventions. Qualifying income includes income derived from selling patented products, licensing out patent rights, using a patented manufacturing process or providing a service relying on a patented tool for example.
2. Calculate the profit attributable to the qualifying income.
3. Deduct a “routine return”, i.e. the profit that the company would be expected to make on the qualifying income in the absence of patent protection. Under the patent box scheme, this is calculated as a 10% return on a specified set of routine costs.
4. Deduct any profit associated with brand or other marketing assets rather than the patents. This figure may be nil.
The reduced tax rate is then applied to the profit remaining after step 4.
How can I apply for the patent box?
You can apply for tax relief under the patent box by making an election in the calculations accompanying your company tax return or by making an election separately in writing. We can assist you with this and provide you with more detailed advice on how to calculate the eligible profits.
Taking advantage of the patent box scheme
We can help your company to get the full benefit of the patent box scheme and also the benefits of patent protection in general at several stages of the process.
1. Identifying patentable innovations
We can help you to find innovative ideas developed within your company that could be protected by patents. Companies often generate patentable ideas in the course of their day to day business but are unaware that those ideas are protectable. We can also identify aspects of your business where other forms of intellectual property protection would be appropriate, such as trade marks and design rights.
2. Obtaining patent protection
Our attorneys are experts in the process of obtaining patent protection in the UK, Europe and elsewhere. We have decades of experience in filing patents and pursuing them to grant throughout the world.
3. Making use of your patents
We are highly experienced in helping our clients to make best use of their patents, whether through licensing, sale or enforcement. We can assist you with enforcing your patents worldwide as well as in the UK courts.
4. Applying for patent box tax relief
We can help you to make sure that your company meets the requirements of the scheme. In particular, we can certify that a particular product is a covered by a patent. We can also assist with calculating the proportion of profits eligible for the patent box.