You may already be successfully claiming R&D tax credits for your fast growth company. If so, you might be wondering what’s next in terms of tax incentives to assist your business once you have gone beyond the research and development phase and into the phase of commercial exploitation?
Up until now, there hasn’t been much….
However, we now have the latest UK tax incentive for intellectual property rich companies – the Patent Box, which kicks in from 1 April 2013.
The UK Patent Box is a £1bn+ tax incentive that represents potentially one of the most significant tax incentives ever introduced in the UK.
Here are 10 facts to get you started – plenty more detail to come in future posts:
- 10% corporation tax rate will apply to company income falling within the Patent Box – this more than slashes the corporation tax rate in half!
- Applies to qualifying patent derived profits generated from 1 April 2013 – 10% tax rate phased in over four years
- Companies must satisfy specific ownership requirements to one or more patents to fall within this regime
- Patents must be granted for the relief to apply. For patents pending, you can track the relevant income for six years and claim the tax relief upon grant
- Patent must be granted by certain designated patent offices to qualify: the UK Intellectual Property Office; the European Patent Office or other patent offices within certain designated EU countries
- Companies must take an active role in developing the invention to which the patent applies to qualify – passive ownership will not suffice.
- For groups, the company that holds the patent must carry out an active role to manage the IP
- Relevant patent profits are calculated by applying either an apportionment or streaming methodology – apportionment is the default calculation methodology
- Disappointingly the calculations are complex as you must run through a six stage process to reach the qualifying relevant patent profits – but this is where we can help.
- You enter the patent box regime by election – it is not automatic.
Given that this relief kicks in from 1 April 2013, your company may already fall within this regime if your financial year end falls after this date e.g. those with an April, May or June year end!
If you already have patents or are considering filing patents, you need to start planning now to maximise this opportunity.