In April 2013, after two years build up, the Patent Box Regime arrived. This provides for profits from patents being taxed at a lower effective rate - eventually 10%.
Patent Box will apply to most income from patents registered in the UK or certain European patent offices, no matter when granted, including product sales, royalties and sale of patent rights. A product only needs one patent in order to qualify, as long as that patent is over an integral part. An example discussed in Parliament is that of a car manufacturer; if there is a patent over the wing mirror, then all profits from the sale of the car would be eligible.
There are however a number of misconceptions around Patent Box that put businesses off claiming, such as:
• Patent Box only applies to large pharmaceutical companies
• I have a patent over a process rather than a product and therefore cannot claim
• It only applies to sales in countries in which you have a patent
• The compliance burden will be too high
All of these are incorrect.
There are entry criteria that need to be met, including owning, or having an exclusive licence (by territory) over, a patent. It is also necessary for the company claiming the relief to have developed the Intellectual Property behind the patent, or (if created by another member of the group) for the company to actively participate in managing the patent.
The 10% tax rate is not the lowest Patent Box rate around, for example the Netherlands, Luxembourg and Belgium all have similar regimes but with much lower rates (down to 5%). However the government has stated that they are not interested in a race to the bottom. The regime is not necessarily designed to attract businesses to the UK, but is more of a defence mechanism to stop companies leaving.
It is too early to tell whether this is working but the signs are that there is still some way to go.
It is also important to note Patent Box will not reduce the benefit of Research and Development tax relief.
Therefore, with R&D relief available on the development of new products, and the Patent Box to reduce the tax on existing products, effective tax rates, and cash tax payments should be significantly reduced.
Find out more and join our Intellectual Property Seminar – Patents, Tax Relief and Refunds:
12th November 08:00-10:00, BioPark Limited, Broadwater Road, Welwyn Garden City, Hertfordshire, AL7 3AX
Register here to book your place on the seminar.
Alternatively contact Tom Byng, Partner and Patent Box Regime specialist on 0208 446 0922 or email firstname.lastname@example.org