Use the Patent Box to reduce Corporation Tax to 10%
Innovative businesses that own patents, or exclusively license-in their patents, can now take advantage of a reduced corporation tax rate in respect of profits related to those patents. The preferential rate is in addition to any qualifying R&D tax credits and is applicable to profits generated by UK-owned intellectual property from 1st April 2013. The Treasury is keen to ensure that smaller British businesses take advantage of the new scheme.
To qualify, the patents must be granted by the UK Intellectual Property Office, the European Patent Office or by national offices in 13 specified European countries. In addition, the company or another group company must have undertaken qualifying development for the patent by making a significant contribution to either:
- The creation or development of the patented invention
- A product incorporating the patented invention
Subject to certain conditions regarding rights and territory exclusivity, companies who are licensees of patented technologies may also take advantage of the Patent Box regime.
The Patent Box is available on profits arising from granted patents, including:
- Income from the sale of the patented item, or an item incorporating it
- Licence fee and royalty income
- Income from the disposal of the patent
- Amounts received from infringement of the asset
A prescribed set of calculations are needed to calculate the Patent Box ‘profits ‘ against which the lower rate is charged. The lower rate of tax of 10% will be phased in on applicable profits from granted patents earned after 1st April 2013, starting at 60% of the benefit of the lower rate (e.g 14% for a company paying tax at 20%) and reaching 100% from April 1st 2017.
However, it should be noted that profits made for up to 6 years while the patent is pending, can also qualify and there is a catch up adjustment to benefit from the relief in the period in which the patent is granted.
To benefit from the Patent Box, you have to make an election within two years of the end of the accounting period in which the relevant profits and income arose.
How we can help
Our experienced Patent Box team are available to explain the detailed application of the Patent Box rules. We will help you put systems in place to ensure that all relevant income is fully traceable and assist with the calculations to quantify the patent box ‘profits’ to ensure the maximum benefits under the scheme are achieved. Should you need assistance with Patent registration, we can introduce you to approved Patent Agents.