Using innovation in mitigation against the newly announced UK Corporation Tax rise to 25%
The UK Government has announced that for companies with profits exceeding £250,000 per year, the level of UK Corporation Tax in respect of these profits is set to rise, from the current amount of 19%, to 25% with effect from April 2023. Mindful of this, now is the perfect time to be exploring whether the UK Patent Box scheme, and other tax relief schemes offered by the UK Government relating to R&D and innovation, might be used to help offset against this proposed tax increase.
As background, the UK Patent Box scheme is an initiative offered by the UK Government which enables companies to apply a lower rate of Corporation Tax to profits earned from patented inventions. At its full benefit, the Patent Box scheme allows for a proportion of such profits to be levied at a Corporation Tax rate of 10%, rather than the full 19% (or 25% with effect from April 2023) which might otherwise be levied.
Further information on the Patent BoxRead more
Given the timescales for obtaining a patent can be quite lengthy, noting for instance that a UK patent application can take at least 18 months to push through to allowance from the date when it is first applied for, now is the perfect moment for those UK entities not yet invested in the Patent Box scheme to start considering whether any of their proposed innovations might be potentially protected with a patent, and protected in time before April 2023 when the new tax rate comes into force.
Patent Box not withstanding, any proposed research and development efforts pertaining to such innovation could also be eligible to further forms of tax relief, such as R&D tax credits. In this way, irrespective of whether any patent is obtained, the underlying R&D may still allow for a considerable tax saving to be made. In this respect as well, it is to be noted that the UK Government has recently announced a consultation on how the UK R&D tax credit scheme might be changed. This consultation is set to close on 02 June 2021.
UK Government consultation on R&D tax credit scheme changesRead more
Mindful of the above, for those entities yet to explore how any innovation from their company might be exploited, or for those that have previously put this consideration on hold, now is the perfect opportunity to restart these investigative efforts.
Even if the innovation might seem minor, it is always worth consulting with an intellectual property specialist (such as a patent attorney) for some initial advice on whether this innovation might be potentially protected with a patent. Indeed, with the potential tax savings to be garnered from any such patent that might be obtained, making this consultation could turn out to be an incredibly lucrative decision.