The Patent Box is a government led scheme which allows companies to reduce corporation tax profits by applying an effective 10% rate on trading profits attributable to certain intellectual property rights.
The recent increase in corporation tax rates to 25% could produce significant savings. Patent Box can also interact with R&D Tax Reliefs, which in some cases can result in repayments for companies.
What companies are eligible?
- Within charge to UK corporation tax
- Makes a profit from exploiting patented inventions.
- Holds qualifying intellectual property rights or holds an exclusive licence in respect of any such rights.
- Undertakes qualifying development on the patents.
Qualifying intellectual property
Patent Box requires a development condition to be met, so simple ownership of patents will not qualify.
Profits derived from the following activities will qualify for the 10% reduced rate:
- Licencing or sale of patent rights
- Sales of patented inventions or products incorporating the invention
- Use of the invention in the company’s trade
- Infringement of patent rights
Profits from routine manufacturing, development functions and exploitation of marketing intangibles are excluded.
Claiming the Patent Box
The claim must be made on the company’s corporation tax return along with calculations to support the claim.
The calculation for determining the qualifying expenditure is complex and involves numerous steps to establish the amount available. Broadly, the calculation streams the income of the company to identify the profits attributable to patents, adjustments then need to be applied to arrive at the relevant IP profits.
The company must make an election to claim the Patent Box within two years following the end of the relevant accounting period in which the relief is claimed.
Patent Box can be claimed alongside R&D tax reliefs incentivising company innovation and therefore companies should consider claiming under both schemes provided eligibility is met.
If you would like more information or any advice don’t hesitate to get in touch with us so we can assess whether the company meets the eligibility criteria. We can then assist with preparing detailed calculations and ensuring appropriate elections are made to secure valuable tax relief. Please get in touch with us on 01295 250401 or email firstname.lastname@example.org. You can also contact us here with your query.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.