Patent Box: don't miss out on this valuable tax relief

Ian Rowland
accounting tax invoice
Patent Box provides qualifying companies the opportunity to benefit from a 10% effective tax rate on profits derived from certain patents. Ian Rowland explains why the scheme has become more favourable and how to claim the relief to optimise potential value.

The Patent Box relief was introduced by the Government in 2013 to incentivise companies who hold and exploit intellectual property (IP) in the UK. It provided an opportunity to pay a lower effective rate of corporation tax on those profits.

HMRC currently estimates that 1,510 companies are elected into the Patent Box, sharing £1.36 billion of tax relief in 2021/22. The number of claimants has plateaued in recent years, with only a modest increase to the amount of relief claimed. This is expected to increase, however, due to a change in corporation tax rates from 1 April 2023.

With around 90,000 research and development (R&D) tax relief claimants and over 20,000 patent applications per year at the UK Intellectual Property Office (IPO) alone, there appears to be a substantial opportunity for companies, who are currently missing out, to benefit where they have developed and commercialised IP.

Tax benefits of scheme have surged in past year

With the main rate of corporation tax increasing to 25% from 1 April 2023 and the effective Patent Box rate remaining at 10%, the tax benefit of the Patent Box scheme is increasing by over 66%, with a 15% saving on Patent Box profits compared with 9% previously. This means the scheme is now even more beneficial than ever for companies with qualifying IP profits.

The Patent Box regime went through a period of transition between 2016 and 2021 where, following an OECD review, significant changes were put in place for the regime. This may have put potential claimants off due to complexities in the transition rules for companies moving from the old to the new regime. The ‘new’ Patent Box regime became mandatory for all companies from 1 July 2021, so now is a great time to consider an election into the regime. Existing claimants should also consider obtaining support with developing a robust and optimised claim methodology.

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Who can claim Patent Box relief?

To qualify for the regime, a company under UK corporation tax must meet the following conditions:

  • Own a qualifying IP right or hold an exclusive licence over a qualifying IP right – this includes patents granted by the UK IPO, the European Patent Office and the patent offices of selected EU member states
  • You (or another group company) must have been involved in the development of the patented invention or be actively involved in the management and exploitation of the IP
  • You must have undertaken some qualifying R&D activities in respect of the patent income stream
  • You must be making profits from the ‘patented’ IP to benefit from the regime

Next steps for qualifying companies

Under the new Patent Box regime, a company could be required to stream its Patent Box calculation on an IP right by right basis. Therefore, if you believe that the Patent Box regime may be beneficial to you, there are some easy steps to ensure you have the information you need should you decide to claim relief. This includes:

  • tracking your patent related income and expenditure
  • maintaining an up-to-date list of patents (both pending and granted)
  • keeping track of any R&D spend related to your relevant IP

Each claim process is different, but our specialist Patent Box team can guide you through an election into the regime, or to navigate the recent changes in the calculation, to optimise the potential value.

If you own or exclusively license an IP right and have undertaken previous R&D activity in respect of that right, don't miss out on this valuable opportunity that could bring a 10% effective tax rate on relevant patent profits.

For more insight and guidance, please get in touch with Ian Rowland.

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