Corporation Tax Deductions – Taking Advantage of Patent Box

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Corporation Tax Deductions – Taking Advantage of Patent Box

What Is Patent Box?

Following the departure of several high-tech companies from the UK, in 2009 the UK Government decided to introduce a tax relief initiative known as Patent Box. The Patent Box regime allows UK companies (including subsidiaries and overseas territories) to take advantage of an effective reduction in the rate of corporation tax to as low as 10% for worldwide income that arises from the exploitation of inventions that benefit from certain IP rights. As of 1 April 2013, companies have been able to elect in to the Patent Box regime.

Are You Eligible?

Your company must meet certain criteria if you are thinking about electing into the Patent Box. First, you must hold a qualifying IP right or an exclusive licence in respect of any qualifying IP rights. You must have also undertaken some qualifying development, prescribed as making either a significant contribution to the creation or development of the patented invention or a product incorporating the patented invention. These requirements are slightly obscured if your company is part of a ‘group’. You do then not necessarily have to undertake the qualifying development yourself as this may be done by another company within the same ‘group’. In this case you may instead satisfy an active ownership condition to qualify for Patent Box. Importantly, if you have made profits from IP rights in previous financial years and are yet to elect in to the Patent Box, then you may still be able to secure deductions for these previous years.

Is It Worthwhile?

The Patent Box regime has generally been welcomed with some companies restructuring their IP holdings in order to benefit from the regime. However, the calculation of the profits to which the Patent Box can apply is sometimes complex which could deter some companies from deciding to elect into the Patent Box regime. Needless to say, when deciding whether or not to elect into Patent Box you must consider the potential benefits and drawbacks for your own specific situation; we are happy to help with this process.

How Can We Help?

Regardless of the reactions of UK companies and experts, it looks like Patent Box is here to stay, and if your company is making a significant profit from the sale of any products related to corresponding IP rights, it may be an economically sensible option to elect into the scheme. If you would like to discuss any of the detailed aspects of the Patent Box scheme in greater depth with us, require some guidance or advice regarding your company’s eligibility and potential benefits, or desire assistance with the identification of existing patents and applications that could qualify for Patent Box, then please do not hesitate to get in touch.

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