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Patent Box: shows UK is open for international business

My Kinda Town

The new Patent Box tax incentive is phased in this month allowing qualifying companies to claim a beneficial rate of corporation tax of just 10% (by 2017) on worldwide profits derived from qualifying patents.

Responses from UK business so far has been disappointingly muted so its good to see that this new relief is attracting the attention of overseas companies who may now take the UK seriously as a location to set up new ventures – particularly hi-tech businesses.

See this extract from David D. Sprague of Baker & MacKenzie LLP in Palo Alto CA:

“What makes the U.K. patent box particularly interesting for U.S. multinationals is that the United Kingdom has always been a logical base of foreign operations for U.S. groups.  For example, the U.S. high-tech community has found the United Kingdom to be an attractive jurisdiction in which to locate regional management headquarters, and some English industrial parks look like they have been transported from Silicon Valley. Advertising-supported internet-based businesses are particularly attracted to the United Kingdom, as London remains the region’s preeminent center of the advertising business.

So if the United Kingdom can get its patent box right, there is a real possibility that some U.S.-based internet and similarly situated businesses could see reasons to consolidate more activities in the United Kingdom, even making their U.K. group entities the central economic entrepreneur for their offshore structures.”

If we manage to pull this off and attract exciting new businesses and jobs – this would be a great result for the UK.

In the meantime, if you are a start-up, growing business or more mature SME – please don’t overlook the Patent Box, especially as it’s right on your doorstep!

 

image credit: Trey Ratcliff via Compfight

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Can my tech company claim 10% Patent Box relief on software?

The new beneficial Patent Box rules will be introduced with effect from 1 April 2013 and it is important therefore that companies consider how they might benefit from a 10% corporation tax rate.

There is a common misconception amongst tech companies that software cannot be patented (although this misconception is understandable when you take an initial look at the relevant patent law…)

UK patent law excludes:

‘a scheme, rule or method for performing a mental act, playing a game or doing business, or a program for a computer’

from constituting inventions for the purposes of filing a patent; however, the legislation subsequently offers a small crack of light for tech companies by limiting the application of this exclusion.

To understand more we need to refer to relevant case law and this has evolved to the stage where software can be patentable in the UK and Europe where it can be demonstrated that the software or coding makes a technical or inventive contribution to ‘human knowledge’. In effect, we look beyond the fact that the invention is a computer program to the underlying technical contribution or technical solution that it brings about provided it is novel and inventive.

For example, consider a software program that allows imagery to be digitally enhanced or improved. This could be patentable if it can be demonstrated that the technical problem that has been overcome is novel or inventive and therefore results in a contribution to ‘human knowledge’ – it just ‘happens’ to have been achieved using a computer program and therefore this should not preclude a patent. You can envisage software that can solve technical problems for physical hardware e.g. speed of data transfer, as well as solving technical problems related to the software all of which could be patentable.

Both the UK and European patent offices grant patents for software in cases where the facts fit which is crucial for the purposes of claiming the benefits of the Patent Box. The US rules are of little assistance to us here as a US granted patent will not qualify for the Patent Box.

Incidentally, if you find yourself pursuing patents to protect your idea and benefit from the Patent Box – don’t forget about R&D tax credits!

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SMEs could miss out on £1bn Patent Box tax relief

Green packagingIn the same way that £ms are potentially being lost on R&D tax credit claims across the north west, it also appears from my discussions with companies that too few businesses are aware of the forthcoming Patent Box company tax relief.

Admittedly, the Patent Box is a brand new tax incentive to be introduced with effect from 1 April 2013 but some companies will already be in financial accounting period ends that straddle this date so are effectively already potentially eligible.

The Patent Box will allow for worldwide income derived from qualifying registered patents to be subject to a reduced UK corporation tax rate of just 10%. This will result in a 50%+ reduction in the rate of corporation tax suffered – so a company with say £1m of taxable profits of which 50% is derived from patents could save over £30,000 in tax per year!

The scope of the Patent Box is also extremely wide in that a product need only physically incorporate a single patented invention for the income from the entire product to fall within the Patent Box.

HM Revenue & Customs have budgeted that this tax relief will be worth over £1bn to the UK economy yet many companies may unwittingly miss out on claiming their share if they are unaware of this new Patent Box tax incentive.

If you have either registered patents; patents pending or have simply held off registering any patents – now might be a good time to assess your eligibility for the Patent Box as there are a few hoops you need to jump through if you are to have a qualifying claim.

We can help you model the potential tax savings for your company and assist you in preparing your systems to maximise your Patent Box claim.

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10 need to know facts about the UK Patent Box

Patents are only for the old machine

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:

  1. 10% corporation tax rate will apply to company income falling within the Patent Box – this more than slashes the corporation tax rate in half!
  2. Applies to qualifying patent derived profits generated from 1 April 2013 – 10% tax rate phased in over four years
  3. Companies must satisfy specific ownership requirements to one or more patents to fall within this regime
  4. 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
  5. 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
  6. Companies must take an active role in developing the invention to which the patent applies to qualify – passive ownership will not suffice.
  7. For groups, the company that holds the patent must carry out an active role to manage the IP
  8. Relevant patent profits are calculated by applying either an apportionment or streaming methodology – apportionment is the default calculation methodology
  9. 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.
  10. 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. 

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