The Patent Box scheme is part of the Government’s growth agenda, designed to encourage companies to locate high-value jobs in the UK and maintain the UK’s position as a world leader in patented technologies. It started to take effect on company profits earned after 1 April 2013 and will be phased in over five years, with full benefits being available from April 2017.
The scheme allows companies to elect to apply what will eventually be an effective 10 per cent rate of Corporation Tax to profits arising from the exploitation of patented inventions and other qualifying intellectual property (IP) rights.
In order to benefit from the Patent Box, your company must own or exclusively licence-in patents granted by the UK Intellectual Property Office, the European Patent Office or specified EEA countries, and the company (or in certain cases a group company) must have undertaken qualifying development for the patent. The Patent Box will apply to existing as well as new IP, but patents bought as investments will not profit from the new rules.
So what constitutes profits arising from exploiting qualifying IP? In order for income to be eligible for the Patent Box, it must come from at least one of the following:
• Sale of patented products
• Licensing-out of patent rights
• Sale of patented rights
• Infringement income
• Damages, insurance or other compensation related to patent rights
Relief is also available under the Patent Box scheme for companies that use a patented manufacturing process to manufacture non-patented products, or who provide a service using a patented tool.
The key thing will not just be claiming relief on items which you have patented anyway, but also exploring the possibility of patenting newly developed items to benefit from the tax relief. In many cases, this will be worthwhile where traditionally it would not have been; often, it may only be possible to obtain a very narrow patent, which would provide very little protection benefit and would not previously have been worth applying for. However, if this is now the “gateway” to the tax relief, this type of narrow patent is likely to become more common in future.
Given that it is only possible to register a patent while your invention remains “new”, it is critical that companies do not miss the opportunity.