What are the 2021 Patent Box changes?

by Ann Minson

Companies with still claiming under the old patent box rules will automatically transition to the new patent box on 1 July 2021, so how is that going to affect their patent box claims?

In practice a company that generates all its income from a single patent developed in-house should not see a significant difference in the amounts it can claim. Most companies don’t fit that simple fact pattern, however, and then the differences in the new calculation can have a major impact.

Under old Patent Box, profits could be apportioned on the basis of combined income from all eligible patents over total income. In contrast under New Patent Box a separate profit or loss calculation is required for each patent.  As a result, companies moving into new Patent Box are going to need systems to allocate costs across the various income streams. Where the company holds more than one patent this means more number crunching.

In addition, claims under new Patent Box are restricted to ensure the company only benefits for patents developed in-house or using unconnected subcontractors. There is a formula to strip out profits from patents developed by connected parties or bought in. This means claimants need to keep a running total of all development costs – more number crunching again.

As a result, new Patent Box means more record keeping, a more complex calculation and, where patents were developed by a connected party, a lower level of relief at the end of it. Where the company’s accounting period straddles 1 July 2021, it will claim under the old regime for IP profits incurred up to 30 June and under new patent box rules for the rest of the period.

Sadly, new Patent Box isn’t as straightforward as the old version, but for companies with patents developed wholly or mainly in house it can still deliver an effective tax rate of 10% on profits from patents.

Whether you are interested in exploring old or new Patent Box for your company, Ensors experts are here to help, so get in touch.

Author

Ann Minson

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