Boxing Clever - Take Advantage of the UK Patent Box
The financial year starting in April 2013 sees the introduction of potential corporation tax relief under the so-called Patent Box scheme. Use of the Patent Box can reduce corporation tax payable from 23% to10% on profits made by any company in the UK that can be attributed to qualifying patents. This relief will be introduced on a sliding scale starting at 60% of this amount in 2013 and increasing by 10% each year, until in 2017 corporation tax on these profits will be 10%.
How might the Patent Box apply to you?
If you hold eligible patents or patent applications or exclusively license patents 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 European Patent Office (EPO) and UK Patent Office (UK IPO). The profits on any product that has some part of it covered by a patent owned by you or exclusively licensed by you would be eligible for the scheme. It is not an automatic relief but is something that you can elect into.
Although a larger product having a small component covered by a patent would see the profits from the whole product falling within the Patent Box, the inclusion of a patented component in a larger product that does not seem to add anything to that product may be seen as tax avoidance. Therefore if you have a product, only a small component of which is covered by a patent, documentation regarding the usefulness of this component should be retained.
What should you do 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 do need to include the calculations of profits for the patent application in the tax returns for the relevant years.
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 23% to 10%. Only a certain proportion of your profits will be considered to be due to qualifying IP and other amounts deemed to be due to marketing assets and routine profits will be deducted from this proportion. This is clearly something to consider before electing into the scheme.
UK HM Revenue & Customs (HMRC) Patent Box tools and advisory notes