22/06/2022
Since the regime was phased in from 1 April 2013, the UK Patent Box has enabled companies to apply a lower rate of Corporation Tax to worldwide profits earned from qualifying patented inventions and equivalent forms of intellectual property. The relief is given via a deduction from total taxable trading profits for a chargeable accounting period.
The patent box regime was introduced to provide additional incentive for companies to:
- locate the high-value jobs associated with the development, manufacture and exploitation of patents in the UK;
- manufacture and sell those innovative products and services from the UK; and
- increase the level of patenting of IP developed in the UK, and ensure that new and existing patents are further developed and commercialised in the UK.
The lower rate of Corporation Tax under the Patent Box is 10% compared with the main rate of Corporation Tax, which has held steady at 19% in the years since 2017. However, from 1 April 2023, the main rate of corporation tax for profits over £250,000 is set to increase to 25%, while profits between £50,000 and £250,000 will incur tax at a marginal rate of 26.5%. Fortunately for UK businesses, we understand the lower rate of Corporation Tax under the Patent Box is to remain at 10%. Consequently, once the new Corporation Tax rates come into effect, UK companies could benefit from even greater savings on their tax bill for profits apportionable to qualifying IP under the Patent Box regime.
In the tax year 2019/20, the latest year for which HMRC published detailed statistics, around 1,370 companies made UK patent box claims, with the total value of relief in the region of £1,175m. Under the new Corporation Tax rates, HMRC are likely to see a significant increase in the total value of relief claimed, even where the total number of claimants remain constant.
SMEs are currently receiving only a tiny percentage of the value of the Patent Box scheme. As it stands, 92% of tax relief under the Patent Box is claimed by large companies (companies having over 250 employees, and either 50M EUR turnover or 43M EUR in total assets). The Patent Box regime is a huge source of untapped funding for UK SMEs. Despite this, the number of new patent applications filed in this country has seen a gradual decline over the last decade, suggesting that UK businesses may be missing out on Patent Box opportunities.
In view of the impending hikes to corporation tax, it is more important than ever for companies not already making use of the Patent Box to act by seeking UK or European patents (or other qualifying IP rights, e.g. SPCs, plant breeders’ rights, plant variety rights) covering the products/services of their business in order to benefit from the tax relief. Although pending patent applications can be put in the Patent Box, relief is not available until the patent application grants. If you act now, steps can be taken to accelerate the patent process to achieve grant in the next financial year, meaning the reduction in corporation tax will be seen as soon as possible.
At Reddie & Grose we work with clients at the forefront of innovation – if you would like assistance with your IP strategy then please get in contact. We have a multidisciplinary team of attorneys that can assist you with invention harvesting and patent filings.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
