Are you prepared for the Patent Box regime changes?

For the past three years, companies have been able to benefit from lower rates of corporation tax on profits earned from patented inventions. Rather than the usual rate of 20 per cent, any profits gained have been subject to a decreased rate of corporation tax, which will fall to just 10 per cent from April 2017. Known as the Patent Box scheme, it has resulted in significant annual tax savings of tens of thousands of pounds or more for many companies.

However, from July 1 this year the criteria by which companies can claim for relief on earnings from patents is being altered to comply with an international framework, which will link the amount of relief available to the amount of research and development work undertaken to develop the patent.

Wide-ranging effect

This will reduce many companies’ opportunities to take advantage of the relief. It will leave some companies ineligible to claim, and those which are able to claim will have an increased amount of paperwork and record keeping.

Although some companies may not be affected, one caveat is that expenditure needs to qualify for research and development relief even if an R&D claim is not going to be made.  That could either negate claims for those who will not qualify, or result in a reduced claim for those who subcontract R&D to a different organisation.

Businesses that do choose to enter into the Patent Box before July 1 will be able to benefit from the terms of the current regime which will apply to all profits from patented inventions until 2021, providing a potentially lucrative period of relief.

Even businesses that may encounter a year or two of taxable losses could still benefit from electing into the current regime if they expect to be profitable in the next five years.

How to take advantage

Companies wanting to take advantage of the current, more lenient qualification criteria must own or exclusively license-in a UK or European patent or have a patent pending. With the July 1 deadline for changes fast approaching and a registration with HMRC required, now is the time to act if companies want to take advantage of the existing system.

Garbutt + Elliott can help can help by preparing a feasibility report to determine a company’s  suitability for the Patent Box regime, including examining what intellectual property qualifies, which proportion of income counts, and what the claim is worth.

Our team of tax experts can also help to prepare any Patent Box calculations that would be included in annual corporation tax returns and also look at how claims could be enhanced.

If you are thinking of registering a patent or have a patent pending, contact us to find out more about the Patent Box changes and how applying before the July 1 deadline could result in significant tax savings.

For more information please contact Rob Durrant-Walker or Angela Mikola