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Companies urged to claim Corporation Tax relief via Patent Box regime

Companies in the UK may be missing out on a generous but under claimed relief. The Patent Box regime is a special Corporate Tax relief used by several countries to incentivise research and development (R&D) by taxing patent revenues differently from other commercial revenues. 

It allows companies to apply a lower rate of Corporation Tax to profits earned from its patented (and similarly protected) inventions. 

The UK Patent Box regime for companies exploiting UK or European patents was introduced to incentivise companies to retain and commercialise existing patents, and to develop new innovative patented products. 

It does this by taxing the profits generated from qualifying patents at a preferential rate of 10 per cent. 

This represents a significant tax saving when compared to the current 19 per cent rate of Corporation Tax, which for some businesses will rise to 25 percent from 1 April 2023.

The rules for Patent Box were amended on 1 July 2016, although grandfathering provisions (in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases) will apply until 30 June 2021. 

The main change was to add a link between the patent on which the relief is being claimed and the company carrying out the R&D. There are also some additional administrative requirements in calculating the relief available.

A beneficial aspect of the relief is that it applies to profits from the worldwide sales of patented products, even if the patent only applies to a small part of the total product. 

Patents can only qualify if they are granted by the UK Intellectual Property Office, the European Patent Office, or specified EEA countries. The regime notably excludes patents granted by patent offices in France, Spain, Italy, the US, and Japan.

The benefit of the Patent Box is available through legal ownership of the patent or through holding an exclusive licence to commercially exploit a patent.

The regime can apply to existing, newly granted or acquired patents, however, the UK claimant company must have had, or intend to have, a significant involvement in the development of the patented invention, or a product incorporating the patented item. 

If this development condition is only met because of activities of another group company, the claimant company must also actively manage its portfolio of qualifying patent rights. This may include activities such as protecting the patent, researching alternative applications for the patent or licensing others to use the patent.

We have previously assisted businesses with the Patent Box regime and can help with determining eligibility and calculating claims. If you have any queries, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 6 May 2021.