HMRC introduced the Patent Box regime for qualifying companies in 2013. The aim of the regime was and is to encourage companies to locate high-value jobs and activity associated with the development, manufacture and exploitation of patents in the UK through enhancing the competitiveness of the UK tax system for high-tech companies obtaining profits from patents.
To be eligible to make an election under the regime, a company must be subject to UK Corporation Tax, and must have undertaken qualifying development by making a significant contribution to the creation or development of a patented invention, or a product incorporating the invention.
The regime works by applying a reduced rate of corporation tax of 10% (as opposed to the standard rate of 19%) on company profits derived from qualifying patents and certain other forms of similar qualifying intellectual property rights.
The Patent Box is an optional regime and therefore Companies have to ‘elect’ into it. The reduced rate of tax will be delivered through an additional deduction in the corporation tax computation.
Companies which may benefit from the new regime should now be:
- Reviewing potential patent applications and those awaiting approval;
- Reviewing their group’s IP ownership structure;
- Ensuring that the company’s accounting records allow for the required information to calculate ‘Relevant IP Income’ to be easily extracted;
- Setting up procedures to identify direct costs and other ‘routine’ expenses;
- Reviewing whether it is favourable to ‘elect’ into the Patent Box Regime, as in limited cases (e.g. where a company is loss-making) it may not be;
- Reviewing whether the company’s R& D expenditure will qualify for enhanced tax relief or tax credits under the R& D tax regime.
The Patent Box legislation and the method of calculation of ‘Relevant IP profits’ can be complex, and anti-avoidance rules are in place to prevent abuse of the regime, however the tax savings to your business could be significant.
- Seed Enterprise Investment Scheme
- Research and Development
- Patent Box
- Creative Sector Tax Reliefs
- Enterprise Management Incentive ("EMI") Options and Entrepreneurs' Relief
- Capital Allowances: Integral Features