The UK patent box
Under the patent box scheme, a company can apply a lower rate of corporation tax to profits earned from its patented inventions.
This is an opt-in scheme that can reduce corporation tax payable from 20% to 10% on profits made by any company in the UK that can be attributed to qualifying patents. The scheme is known as the 'Patent Box' in reference to the tick-box on tax forms that has been added for it. This relief has been introduced on a sliding scale over five years, starting at 60% and reaching 100% in 2017.
How might the patent box apply to you?
If you hold eligible patents or patent applications, then you may be able to reduce your corporation tax bill by using the patent box. Eligible patents include among others, those granted by the EPO and UKIPO. The profits on any product that has some part of it covered by a patent owned by you would be eligible for the scheme. It is not an automatic relief and so, as an opt-in scheme, you must elect in in writing within two years of the end of the accounting period.
The profits that are attributable to qualifying patents are fairly complex to calculate but it is important to note that your corporation tax will not reduce from 20% to 10%. Only a certain proportion of your profits will be considered to be due to qualifying IP while other amounts (eg, due to marketing assets and routine profits) will be deducted from this proportion. This is clearly something to consider before electing into the scheme.
Steps to take now
It may be appropriate to adjust your IP strategy to ensure that new products are covered by patents and that you record relevant information on any profits attributable to qualifying patents.
If you have patents that are due to expire or that you plan to sell, you need to elect into the Patent Box scheme while they are still valid and owned by you if you are to claim any relief from the profits of these patents.
Although relief is only available on granted patents, profits attributable to patent applications can be counted under the scheme retrospectively once the patent is granted. In order to do this you need to include the calculations of profits for the patent application in the tax returns for the relevant years. If a patent is revoked any savings on corporation tax are not repayable.
How we can help
We are able to assist innovators with the identification of existing patents and applications, and of new inventions, which could make products and processes qualify for the Patent Box. We also are able to liaise with accountancy teams to provide advice to clients on this specific issue.