Quick Factsheet About The Patent Box
The Patent Box regime can be hard to untangle, even for the most established of business accountants. Our factsheet can help.
What you need to know
The Patent Box regime. It’s incredibly valuable, but still far too many companies - and accountants - haven’t heard of it. Here we’ve given a rundown of the facts, but more in-depth information can be found on the Patent Box page of the government website.
About the Patent Box
- The UK Patent Box regime was launched in April 2013
- It works by taxing the profits generated from eligible patents at an attractive rate of 10%. This represents a generous tax saving when compared to the current 19% rate of Corporation Tax.
The Patent Box was introduced for two distinct purposes:
- To provide a tax incentive to companies for retaining and commercialising existing patents
- To incentivise the development of innovative, new patented products
Note that the Patent Box rules were amended in July 2016 to make the scheme less open to abuse. However, for pre-July 2016 recipients, the old rules will continue up until the 30th June 2021.
What’s the change?
A key change is that there’s now a link is established between the company undergoing the R&D and the patent for which the relief is being claimed. Some of the administrative requirements in calculating the relief have also been updated, which we can advise you on if required.
And the benefit?
The main benefit is that even if the patent is only in relation to a small part of the product, the profits from its worldwide sales will still attract the relief. However some additional criteria may need to be met, and again we’d be happy to discuss this with yourself and your client.
Eligibility criteria can be complex
Identifying the kinds of projects and patents that qualify isn’t always straightforward. However, broadly speaking in order to be eligible for the Patent Box regime, a UK company must:
- Be liable for the payment of UK Corporation Tax
- Have made a profit from products that are either entirely patented or that contain patented parts
- Either own the eligible patents or hold exclusive licences for them as granted by the UK Intellectual Property Office or the European Patent Office. Certain other European patent offices can also have granted the licence (if you’re not sure then contact us for help)
- Have exclusive rights to exploit the patent in at least one country, and the right to take action against anyone who undergoes infringement.
Simply managing the rights is no longer sufficient
Under the old regime, companies that held qualifying IP rights could allow other group companies to benefit from the licence and also benefit from the Patent Box. However, under the new rules, a company must have been substantially involved themselves in the innovation or development of the qualifying IP rights or products.
Not all income qualifies for the Patent Box scheme
To receive the preferential 10% rate, a company’s income:
- Must be the result of selling the patented products or product parts.
- Can also be derived from money received due to damages or compensation that has arisen due to legal action regarding infringement.
Income which will not qualify for the Patent Box reduction includes:
- Income that would have been received by the company even without the patent rights
- Money that is generated from marketing asset return. This would be income earned from advertising for example, rather than from the innovative product itself
This last bullet point can be particularly complex to navigate, even for the most competent of business accountants. This is why we strongly recommend getting in touch with us so we can work with you in identifying the differences.
How long do companies have to claim?
Companies must elect for Patent Box relief within two years after the end of the relevant accounting period in which relief is claimed.
Can companies elect early?
Yes, in fact it’s worth doing this during the patent pending period where possible so that the company can still benefit. The relief will then be claimed on your client’s return for the tax year in which the patent was finalised.
I’m an accountant - shouldn’t I know all this already?
No, not necessarily. The Patent Box scheme is very lucrative, but it’s complex. So it’s important to seek expert professional advice on the Patent Box scheme as early as possible - which is where the Myriad Associates team comes in.
At Myriad Associates we only deal with research and development-related grants, tax reliefs and funding. Our team of specialists, advisors and accountants can answer any questions you may have about the Patent Box, and are on hand during the claims process. We will work with both you and your client to offer advice, assist with the complex calculations and help your clients make money from their patents.
Patents often go hand in hand with R&D Tax Credits
Creating something new, and patenting it, is a sure sign that a company has undergone an innovative R&D project. Whether it was designing a brand new product, service or process or substantially upgrading an existing one, where there’s a patent there tends to be R&D. And where there’s R&D, there may well be R&D Tax Credits.
R&D Tax Credits essentially allow UK companies to claim back some of the costs of their innovative projects. The relief is offered either as a reduction in a company’s Corporation Tax bill, or (for loss making companies) as a cash lump sum. As long as a technical and/or scientific advancement was made in the field, however small, then a claim could well follow. And with average claims in the UK sitting at around £50,000 it’s a serious amount of money for your clients to miss out on.
Find out more about R&D Tax Credits.
Try the Tax Cloud portal now
The Tax Cloud portal for accountants means that you can make an R&D Tax Credits claim quickly and simply on your client’s behalf. It allows you to add in their own figures to see at a glance what they can claim, and offers a cost-effective, self-guided solution with our support if you need it. It’s free to sign up so why not try it today?
To discuss anything we’ve mentioned in this article, or to discover more about R&D tax relief in general, please do get in touch on 0207 360 4437 or drop us a message.