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IP Cases & Commentary – Details

01 June 2012

The Patent Box: More Good News for UK Business Investment

Doug Ealey

The Patent Box: More Good News for UK Business Investment

On 21 March 2012, the Chancellor confirmed his commitment to a UK ‘Patent Box’ in the budget, which, as of 1 April 2013, provides for a reduction in tax from 23% to 10% for IP based profits(see note 1 below). Following this confirmation, the pharmaceutical giant GlaxoSmithKline announced a £500m investment in the UK, with its CEO saying, “The introduction of the patent box has transformed the way in which we view the UK as a location for new investments”(see note 2 below). This view is now likely to be bolstered by the generally positive changes made to the final draft of the Patent Box legislation in the 2012 Finance Bill (see note 3 below), some of which are outlined below.

The most significant change is that the legislation now includes income from licences for a patented invention in a country that is not covered by the qualifying patent (see note 4 below). As a correspondent who pointed this discrepancy out to the Treasury, we are delighted to see that it has now been corrected. Hence for example it is now possible for a UK firm to include income from licencing an invention in the US, providing it also has a UK or European patent. This is in contrast to the original legislation that appeared to limit licencing to just the qualifying patents themselves.

Clearly, this change is excellent news for UK firms whose business relies heavily on licencing overseas.

Other notable points in the final legislation are the confirmation that in addition to patents, the Patent Box extends to Supplementary Protection Certificates, granted secret applications, UK and European plant breeders’ rights, and for products also extends to certain marketing protection rights for medicines, and data protection rights (see note 5 below).

The Government has also extended the patents qualifying for the Patent Box to those from a number of European states, the most notable being Germany. However in practice it is unlikely for a UK firm to have a German national patent and not a UK or European issued patent, and so the effect of this provision may be limited.

Finally, further changes to the legislation include that the simplified profit calculations for small businesses has raised the threshold on total profits from £1m to £3m (see note 6 below), thus making this process accessible to far more SMEs.

The provisions for SMEs are intended to make the system additionally attractive to small businesses, and the maths seems to back this up.

Assuming a 10 year product life, and even rather conservative estimates for the cost of filing, granting and maintaining a patent, if you make more than just £1,000 per month in profit from a patented product or licence, you are likely to be comfortably better off under the Patent Box scheme.

At this point it is worth remembering that most products have a distinguishing aspect if one focusses on the specifics, and that narrow claims often grant more quickly in the UK and Europe; consequently, in addition to broad patents directed at fundamental enabling concepts, patent applications that protect characteristic features of particular products may now also become valuable for their ability to bring these products into the Patent Box scheme.

Moreover, the scheme is generous with what products are eligible: for example a patent for a printer cartridge will make eligible profits from the sale of a printer incorporating that cartridge, and (perhaps more importantly) a patent for the printer makes eligible profits from the sale of a cartridge for that printer. As a result, the scope for identifying patentable products and subsequent profits is very broad.

We can help with the identification of existing patents and applications, and of new inventions, which could make your products and processes qualify for the Patent Box. In addition we can liaise with your accountancy team in preparation for 1 April 2013, or draw on the expertise of a local leading accountancy firm who are happy to provide advice to our clients on this specific issue. For more information and to discuss the options available to you, please contact your usual D Young & Co representative.

Notes  and useful links

  1. The scheme phases in over five years, starting at 60% of full effect
  3. Available at
  4. See §357CC(6)(b) of the Finance Bill
  5. See §357BB of the Finance Bill
  6. See §357CL of the Finance Bill


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