The patent box is all to do with tax, not a topic that usually invokes good thought but when you know it’s about having a lower rate of Corporation Tax you may feel better….
The patent box was introduced in the UK in April 2013 and is designed to encourage companies to make profits from their patents by reducing the amount of UK tax paid on those profits. The lower rate that will be applied is 10% and this benefit companies that are liable to corporation tax and make profits from exploiting patented inventions.1 The regime is very broad, for example, if the patented element of a product is minor, 100% sales income from the product falls into the regime. Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.
What is qualifying development?
Your company must not only own the IP rights they must have contributed to their development:
The company must:
- Create the invention
- Or significantly contribute to the creation of the invention
- Perform a significant amount of activity to develop the invention.
What is a qualifying IP right?
Patents which will be covered by the scheme are those which have been granted by the UK Intellectual Property Office (“UKIPO”), by the European Patent Office (“EPO”), or by patent offices located in other European states which are considered by HMRC to have similar patentability and examination criteria to the UK and the EPO.2
Which other IP rights are included?
The “patent box” regime refers mainly to granted patents but other rights are also included which are:
- Supplementary protection certificates
- UK and European breeders rights
- Medicinal and veterinary products with marketing authorisations and marketing or data protection.
- Plant protection products with data protection benefits.
What types of income will qualify?
- Income from the sale of products with at least one integral patented component.
- Licence fees/royalties for granted rights over qualifying patents
- Certain income derived from valuable patents used in processes that underpin non-patented products/services/consultancy
- Proceeds of realisation of a qualifying patent or exclusive licence
- Income from infringements.
Many small companies already benefit from the R&D tax credits but businesses that are developing new processes or products that advance science and technology can also benefit from patent box.3
Election into the patent box scheme is not automatic and there are many complex calculations that need to be carried out so engaging with a good accounting firm to help with this is important.