The Inside Track on Patent Box
MakeUK ask Sandy Findlay, Partnership Director at ABGI-UK, to give insights on how to make the most of the Patent Box for your business.
27 May 2021
So what is Patent Box?
Patent Box is a government scheme that gives companies the opportunity to pay a reduced corporation tax on all the profits arising from the commercialisation of a patent registered with the UK intellectual property office or the EU patent office. The aim of the scheme is to encourage UK based companies to invest in R&D and innovation and to commercialise on the resulting IP and maintain the resulting profits in the UK.
The scheme gives companies a preferential corporation tax rate on ALL profits associated with the commercial exploitation of a patented invention. Those profits can come from the sale of the patented product itself, the sale of a larger product which incorporates the patent technology, the sale of licenses and associated royalties or even fines and damages paid as a result of someone infringing your patent!
Is it only for companies with patents?
No, the scheme is predominantly used by companies with patents, BUT, If you hold an exclusive license and have responsibility for undertaking qualifying development work, maintaining and commercialising on the IP; or If you hold medicinal or botanical rights;
Then you can take advantage of the preferential corporation tax rates offered through Patent Box.
How much benefit can I expect to receive?
From 1st April 2017 all relevant profits your company earns from its patented inventions can benefit from a corporation tax rate of 10%. This is even more attractive given The Chancellor’s announcement at the last budget to raise the standard rate of corporation tax to 25% in 2023.
What if we deliver a service using patented technology?
Yes, you can still take advantage of Patent Box, although calculating the IP derived income can be a little more complicated with services than physical products, but the benefit is still 10% corporation tax on all associated profits.
We only have a patent pending, can we still apply for Patent Box?
Unfortunately, you can’t. A company can only benefit from the scheme once a patent is granted, however, you can elect into the scheme before the patent is granted. Then once the patent is granted you can make retrospective claims relating to profits or losses made between the date of your election into the scheme and the patent grant date.
Can a company claim both R&D tax relief and Patent Box?
Yes, they can. For companies who invest time and money on eligible R&D and also hold qualifying IP, exploiting both tax relief schemes together can be extremely beneficial.
Is it possible to make a Patent Box loss?
While the scheme is more beneficial for profitable companies with a high proportion of IP-related income, where profits are wiped out as a result of deducting routine expenditures, it is possible to make a “Patent Box loss.” This loss can be carried forward and used to reduce your tax liability in future years when the Patent Box account returns to profit.
Article originally published on MakeUK