When the UK government proposed the introduction of the Patent Box scheme in 2009 their aim was twofold: to encourage British companies to invest in innovation to stimulate the economy and strengthen manufacturing industry, and to make it more attractive for international companies to base their R&D in the UK. With the Patent Box scheme now up and running will it achieve its goals?
What is Patent Box?
Essentially Patent Box allows companies to apply a lower rate of Corporation Tax to profits earned from their patents. The relief is being phased in from April 2013 with the full benefit of 10% Corporation Tax being available from April 2017.
To qualify for Patent Box a company must have been involved with the development of the patent and must own or exclusively license them.
Qualifying patents
All granted UK and European patents qualify for Patent Box regardless of when they were granted, as well as patents from the following countries in the European Economic Area: Austria, Estonia, Hungary, Romania, Bulgaria, Finland, Poland, Slovakia, Czech Republic, Germany, Portugal, Sweden, Denmark
Qualifying income
To qualify, income can arise from a number of sources including:
- Selling patented products
- Licensing out patent rights
- Selling patented rights
- Income arising from infringement of your patent rights – e.g. damages awarded
- Income from use of a patented manufacturing process
- Income from provision of a service reliant on a patented tool
You cannot qualify for Patent Box on the basis of a patent application but once the patent has been granted you can claim for profits that have been generated up to 6 years prior to grant. However, only profits arising after April 2013 will qualify.
Will it work?
For the large multinational companies that generate large profits from a range of patented innovations it is a significant step by the government to encourage them to employ the highly skilled staff required for R&D in this country. The pharmaceutical giant GSK is investing £500 million in its UK manufacturing network and will create around 1,000 jobs directly in response to the Patent Box system.
“When implemented, the patent box has the potential to transform the way in which the UK is viewed by companies such as GSK as a location for new investments in high added-value R&D and manufacturing,” commented GSK chief executive Andrew Witty in an article in Pharmafile .
For smaller SME companies, less experienced in making sure they are taking full advantage of their IP, it will be a little harder to get to grips with. Although some question whether a 10% rate of tax is sufficiently small to encourage businesses, the relatively small investment in patenting your innovations can potentially reap large rewards in the longer term.
As with all IP, a granted Patent is an asset for the company and tax breaks associated with it can only be beneficial.
“Having a granted Patent is a prerequisite for anyone wishing to take advantage of the Patent Box scheme. However, potential users of the scheme need to bear in mind that a patent application must be filed before any public disclosure of the invention takes place. You cannot wait until you are sure you have a commercially successful product before deciding to patent it, in order to get the Patent Box tax breaks. So, SMEs will need to be pro-active in determining at an early stage in product development process, which inventions to patent.” – Jerry Walder, Partner at Sandersons.
For advice or more information about whether the Patent Box could help you contact Sandersons.
[youtube=https://www.youtube.com/watch?v=PfBjLHH-BGQ]
See also:
https://www.ipo.gov.uk/types/patent/p-patentbox.htm
https://www.hmrc.gov.uk/ct/forms-rates/claims/patent-box.htm
