Patent Box – Time for a rethink?

The number of companies claiming Patent Box has only risen slightly in the past 3 years with the R&D tax credit scheme seeing massive expansion. Why is there such a disparity in the uptake of the two schemes?

30 July 2021

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By Jonathan Kennedy, Innovation Funding Consultant at ABGI

The Patent Box regime is a very generous tax incentive that allows companies to benefit from a reduced rate of corporation tax (10%) on relevant profits earned from their patented inventions. However, the number of companies claiming has only risen from 1135 to 1305 in the past 3 years with the R&D tax credit scheme seeing massive expansion in claimants, from 21,165 to 59,990. Why is there such a disparity in the uptake of the two schemes? We believe there are two reasons:

  1. Smaller companies may prefer different forms of IP strategy to patents such as retaining inventions as trade secrets due to application costs, legal fees and yearly renewal fees. The invention is also publicly disclosed and although infringement proceedings can be brought against a potential rival violating IP rights, these can result in significant expenses.
  2. The Patent Box scheme is much more complex and onerous on the claiming company, one example being the existence of two highly distinct sets of rules for the past five years.

But for companies that have not claimed yet, the following changes to the Patent Box rules and Corporation Tax legislation mean that it is essential to reconsider your IP and tax strategy as you could be missing out on a significant cash injection into your business.

1. Increase to Patent Box Benefit

The Corporation Tax rate will increase from 19% to a maximum of 25% from 1 April 2023 onwards but there are no proposals to increase the Patent Box rate. Therefore, this will increase the maximum Patent Box benefit by 67%, with a claim of £200k of IP profits increasing in tax benefit from £18k to £30k.

Consider accelerated filing of IP for patent protection now to have a patent granted by the time at which the higher Corporation Tax rate is introduced.

2. Loss-making companies can access refunds

If a company’s IP income is profitable but the overall company is loss-making, the company can still be eligible for a Patent Box deduction to increase their Corporation Tax losses. Temporary COVID-19 measures for accounting periods ending between 1 April 2020 to 31 March 2022, allow companies to carry £2m of trading losses back three years, enabling greater access to tax refunds.

Assess the profitability of your IP income throughout the pandemic and seek expert advice to ensure your claim timing will maximise the benefit.

3. End of the old regime rules

The ‘grandfathering’ provisions that allowed certain companies to continue claiming under the old rules came to an end on 1 July 2021. The permanent new rules link the patent box benefit to the R&D spend incurred by the claiming company and require the company to track and trace R&D expenditure, IP income and IP expenditure. Although a complex methodology is still required to claim, the newfound stability of the scheme’s rules should provide confidence that the goalposts will no longer change.

ABGI can advise on the level of administration needed to claim Patent Box for your companies’ specific systems and IP rights and how to align your R&D tax and Patent Box claims for robust compliance.

For a free, no obligation consultation and analysis of the potential returns you might expect, contact the ABGI team on 0131 240 2900 or