The UK Patent Box – What’s in it for You?
November 12, 2020
Reduced corporation tax? Yes please.
Governments love innovation. More accurately, governments hate to see innovation leave. In 2013, the UK government introduced a regime designed to promote and retain innovation on UK shores.
It’s a complicated regime. But it is also chronically overlooked and extremely generous.
In this article, we’re taking a look at the underclaimed and much misunderstood UK Patent Box.
In a Nutshell
In April 2013, the UK government launched the UK Patent Box – a tax incentive for companies profiting from UK and European patents.
Keen to encourage companies to keep hold of and make the most of their patents, the government agreed to tax profits from a broad range of patents and intellectual property (IP) rights at almost half of the current 19% corporation tax.
So How Does it Work?
Qualifying businesses receive a preferential 10% corporation tax on all profits derived from patents in IP after April 1st, 2013.
The regime was introduced gradually over four years, finally coming into full effect in 2017.
What’s the Qualification Criteria?
To qualify, companies must own patent licenses in IP and undertake some research and development (R&D). You don’t have to be the sole user of patents – you can still qualify if you license patents to other companies.
In some cases, companies can also benefit from the UK Patent Box if they license patents from others. To qualify, companies must hold the sole rights to develop, exploit and defend the patented technology – including over the original licensor – across at least one full national jurisdiction. (IE, not regional rights.)
Companies within a group can qualify as long as another company with the group has carried out R&D on the technology and made a significant contribution to its development, or incorporated the patented invention into new tech.
Companies within a group must also prove active ownership – that is to say, while it needn’t be making all the decision, the company must be actively involved in the ongoing development of the IP rights.
There are yet more rules when it comes to the jurisdictions in which the IP rights are awarded. Only those granted by the UK, EU and some EEA countries qualify. Patents granted in the US, Japan, Italy, Spain and France are all excluded.
Starting a Claim
Claiming the 10% preferential tax rate is, unfortunately, complex – especially when it comes to working out which expenditure qualifies.
And the calculations differ, depending on whether the company is an SME or large organisation.
The calculation itself deducts routine profits from total profits. From the remaining total, companies then deduct marketing asset to arrive at a qualifying amount for the 10% rate,
And to complicate matters further, the qualifying criteria was changed in 2016 to protect the Patent Box from abuse. These changes increased complexity. On top of an already labyrinthal application process, companies applying in the past four years have also had to carry out separate income and expenditure calculations for each IP right or patented product.
There’s also a new ‘Nexus Fraction’ calculation, which seeks to link the patent box closer to proven R&D activity.
If all this sounds complicated, that’s because it is – The UK Patent Box is overlooked and underclaimed for a reason.
That said, it’s also an attractive incentive for companies working extensively with patented technology or IP rights.
If your company owns patents or IP rights, this one is best tackled with professional help.