Since the Patent Box tax relief scheme was introduced in April 2013, there has been a sharp increase in clients looking to protect their intellectual property due to the very attractive incentive of paying a 10% rate of corporation tax on profits deriving from the intellectual property (IP) in question. Previously, fewer companies had been willing to invest in patents due to the fact that potentially years of internally accured know-how is surrendered to the public domain upon publishing a patent, as well as the perceived administrative burden of protecting IP from infringement.
In 2016, changes were made to the rules governing the scheme following consultations between the OECD and G20 to combat the global issue of BEPS (Base Erosion and Profit Shifting). The UK Patent Box scheme was singled out as a scheme where large enterprises would register IP in the UK and pay corporation tax at 10% without any real requirement to shift resources to the UK.
The good news is that the majority of SMEs operating in the UK will not be majorly affected by the changes. There may be more of an administrative burden as income will have to be streamed by patent or patent family (as opposed to all IP-related income in one pool) and all associated expenditure will have to be streamed against the income. It is expected that this will actually enhance the value of many Patent Box claims due to the fact that IP-related income should theoretically yield greater margins than non-IP related lines.
Most companies electing into the scheme will need to record relevant R&D activities undertaken from 1 July 2016. Therefore, it is imperative that companies look to quantify this as soon as possible to avoid the need to trawl back through years of information at a later date.
The new rules mean that companies not undertaking R&D going forward risk losing much of the Patent Box benefits available through the Nexus rules. Issues may also arise where companies have acquired IP externally or have an inefficient group structure.
For further information, please contact [email protected].
You might also be interested in
