Monthly Tax Idea - April 2013

Patent box – are you benefiting from the tax savings?

The patent box regime for companies started on 1 April 2013 – providing valuable tax incentives for innovation in the UK.  

If your company develops patented technology, which is incorporated in its products, services or processes, or owns or has an exclusive geographic licence to exploit a patent, then the patent box is something you should be seeking to take advantage of.  The benefit of the patent box regime is a reduced (and ultimately 10%) rate of corporation tax on qualifying profits. Not only is the reduced tax rate attractive, but the scope of the patent box itself is very generous – the worldwide sales of entire products which incorporate a patented item can qualify. 

Companies need to opt into the patent box regime to benefit. The tax rules set out a formulaic approach to quantifying the profits which can benefit.  However, companies have the opportunity to use their own basis of calculation of the amount of profits to be taxed favourably under the new regime, referred to as ‘streaming’. In our experience this can significantly increase the level of profits eligible for the reduced tax rate. We can advise on the detailed accounting information you will need to keep in order to benefit from streaming.

If your company doesn’t already own or exploit patented technology, but is involved in innovation, it is well worth looking into obtaining patents from the UK or certain European patent offices. A patent can last up to 20 years, so the tax savings achieved may considerably exceed the initial outlay.  Furthermore, a patent which is only narrow in scope is just as valid for these purposes as a ‘strong’ patent. Patents can also be obtained in wider circumstances than is commonly appreciated – for example, it is possible for some software to be patented. 

Combined with valuable tax incentives for research and development, the tax benefits are too good to miss, and companies should not rule out the possibility of a claim without exploring it fully.