Patent Box – Lower Rate of Corporation Tax


What is the Patent Box?

The Patent Box is a proposed Government scheme allowing UK companies to reduce the amount of Corporation Tax paid in respect of profits relating to inventions protected by a UK patent or other qualifying European patent. The aim of the scheme is to encourage companies to develop and manufacture new products and processes protected by patents in the UK (and some other countries within the European Economic Area). A 10% rate of Corporation Tax will be payable on profits related to income from patented inventions.

The scheme is due to come into force on 1st April 2013 with the tax relief being phased in over a 5 year period. For the tax year 2013-2014 tax relief will be available in relation to 60% of the qualifying profits, with this percentage rising annually by 10% up to 100% in the tax year 2017-2018.


What profits are eligible?

Qualifying profits relate to worldwide income from products which incorporate an invention protected by a valid granted UK patent (or some other countries within the European Economic Area). This can include sales of patented items, patent royalties from licensing, sales of patents, sales of products which incorporate a patented element, sales of products made using patented processes, and profits from the operation of patented processes. Income from existing as well as new IP rights will be included. Deductions will be made from the total gross income in relation to profits attributable to marketing assets and routine activities.


How can you benefit?

To benefit from the reduced tax rate the company claiming the benefit must either own the patent, or must be an exclusive licensee. In addition, the company claiming the benefit must also have contributed to developing the invention in some way.


What you need to do now:

• Review your IP portfolio

• Identify what qualifying IP rights you already hold which are attributed to products you sell.

• Check when these rights are due to expire and consider seeking protection for future products or improvements to existing products. Successfully patenting developments to your products or processes means that you should be able to continue to enjoy the right to claim the reduced tax rate.


Review your patent filing strategy

It is important to review your patent filing strategy to take into account the benefits of the Patent Box. It is likely that it will be beneficial to file patent applications for inventions you might previously have not considered patenting to enable you to claim the reduced tax rate on profits related to those inventions since the costs of obtaining a granted UK patent are likely to be significantly outweighed by the Tax relief. The relief only applies once the patent is granted, but can be applied retrospectively for up to 6 years (post April 2013).

How can we help?

Hargreaves Elsworth can help by providing a review of your current IP portfolio, and by providing advice in relation to both current and potential future patent applications and how best to move forward to maximise the benefits for your business.

Please get in touch to discuss the benefits to your company.

Tel: +44 (0) 191 269 5477
Fax: +44 (0) 191 247 7102
or: +44 (0) 191 269 5478
Email: office@heip.co.uk