26 July 2012
The Patent Box is part of the Government’s corporation tax (“CT”) reform and growth agenda. The aim of the Patent Box is to provide an additional incentive (in the form of reduced CT) for companies to retain and commercialise existing patents and to develop new innovative patented products.
As suggested by the name, the new Patent Box regime will apply to companies within the charge to CT that actively hold qualifying patents and other forms of intellectual property (“IP”).
Introduction
The Patent Box will allow companies to elect to apply a 10% rate of CT from 1 April 2013 to all profits attributable to qualifying IP. This regime will be phased in gradually over the next few years. Qualifying IP includes patents granted by the UK Intellectual Property Office and European Patent Office, as well as supplementary protection certificates, regulatory data protection and plant variety rights.
The Patent Box will apply to existing as well as new IP, and to acquired IP provided that the company has further developed the IP or the product which incorporates it.
Phasing in of the Patent Box
As mentioned above, this regime will be phased in from a 1 April 2013.
[custom_table]
| 2013/14 | 2014/15 | 2015/16 | 2016/17 | 2017/18 | |
|---|---|---|---|---|---|
| % of full benefits | 60% | 70% | 80% | 90% | 100% |
| Effective rate of CT | 15.6% | 13.9% | 12.6% | 11.3% | 10% |
Qualifying IP
The following types if IP will qualify for the Patent Box regime:
- Profits realised from the sale of qualifying products.
- Licence fees and royalties for granting rights over qualifying patents.
- Proceeds received in respect of a qualifying patent or exclusive licence.
- Income arising from patent infringements and other compensation.
Points to note
- The company must elect to use this regime. It does not apply automatically.
- A company can elect into the Patent Box if it qualifies by holding, or licensing-in exclusively, IP rights of the type specified above.
- It is only available to companies which have been properly involved in the innovation lying behind the patent. A company can meet this condition by either, creating or significantly contributing to the creation of the patented invention or, by performing a significant amount of activity to develop the patent or any product incorporating the patent.
- It has been noted that simply acquiring rights to and marketing a fully developed patent or invention will not suffice.
- There are two types of profit calculation that can be used when computing the total profits subject to CT. Either a step-by-step method or streaming.
- Companies eligible for this regime may also be eligible or even claiming the existing Research and Development tax relief that is available and thus it is important to ensure maximum relief if being obtained via both reliefs.
- The company does not have to be solely trading in qualifying patents to potentially be eligible, minor activity surrounding IP may also qualify.
Conclusion
The Patent Box regime will reward companies choosing to retain resulting IP in the UK. Although the regime will not take effect until April 2013, companies should be taking action now to:
- Determine whether they can benefit by electing into the regime.
- Identify and register patents.
- Review their company or group structure to maximise potential tax savings.
Contact Us
For further information on the Patent Box regime, please contact us on 01788 539000.
About Us
Magma is a leading firm of Chartered Accountants and Chartered Tax Advisers, providing a wide range of professional advisory services to owner managed businesses and private individuals. Magma thrives on its work with entrepreneurial businesses and their people. Magma works closely with its clients, delivering proactive and innovative advice. Our focus is on building long term relationships with our clients to help them and their businesses succeed, reduce taxation and create, increase and protect wealth. Magma offers a breadth of technical expertise and specialist advisers across six integrated service areas: Audit and Assurance, Business Services, Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth Management.
This document has been prepared as a general summary. It has been written for information purposes, should not be relied upon and is not a substitute for professional advice which should be sought. This document does not constitute taxation, financial planning or investment advice. Neither Magma Chartered Accountants or any of its employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. Magma Chartered Accountants is the trading name of Magma Audit LLP, a limited liability partnership (Registered in England No. OC370086). Magma Audit LLP is a subsidiary of Magma Partners LLP (Registered in England No. OC370051). The registered office of both LLPs is: Bloxam Court, Corporation Street, Rugby, CV21 2DU. Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Magma Partners LLP is registered with the Chartered Institute of Taxation as a firm of Chartered Tax Advisers. A list of members is available on request.