The Patent Box is part of the UK Government's policy goal to make the UK the best country in the world for innovation. Initial feedback suggests that the Patent Box is being viewed favourably by industry. While there is complexity at some stages of the process, it may well be worth "unlocking the box" to see what can be found.
The Patent Box enables companies to apply a lower rate of Corporation Tax (10%) to profits earned after 1 April 2013 from its patented inventions and certain other innovations. The relief will be phased in from 1 April 2013 until 1 April 2017 when the full benefit of the regime will be available.
Which patents are eligible?
A company can benefit from the Patent Box if the company owns or exclusively licenses-in patents granted by the UK Intellectual Property Office, the European Patent Office and certain countries in The European Economic Area. There is an extension for rights similar to patents such as supplementary protection certificates relating to medicinal products and also to companies granted marketing authorisation for reference medicinal products for human use.
In addition, the company (or another group company) must also have undertaken qualifying development for the patent by making a significant contribution to either the creation or development of the patented invention or a product incorporating the patented invention.
How and when to claim
It is necessary to make an election to benefit from the reduced rate of Corporation Tax that applies to the Patent Box. This can be done in the computations accompanying the company tax return or separately in writing. No particular wording is required and the election must be made within two years after the end of the accounting period in which the relevant profits and income arose.
What profit is "within the box"?
The Patent Box is unlikely to apply to all profits. There are broadly three stages to calculate the profit which can benefit from the Patent Box.
- Identify the profits attributable to income arising from exploiting patented inventions ("relevant IP income")
- Remove a routine profit (this reflects the fact that a business would be expected to earn a profit even if it had no access to patented technology or intellectual property)
- Remove the profit associated with intangible assets, such as brand or other marketing assets (the Patent Box is not designed to reward other forms of IP)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.