UK Patent Box – Tax relief on innovation.
Introduced in April 2013, the Patent Box is a tax relief designed to encourage companies to retain and commercialise existing Intellectual Property (IP) in the UK. It allows companies to apply a lower rate of Corporation Tax to profits earned from its patented (and similarly protected) inventions. Those businesses which qualify for the scheme will benefit from an effective Corporation Tax rate of 10% on income deriving from the commercial exploitation of patents.
Do I Qualify?
A company can elect to benefit from the Patent Box if:
- it is liable to UK Corporation Tax;
- it owns or holds an exclusive licence for the rights to the patents;
- it makes a profit from exploiting the patents; and
- it has made a significant contribution to the creation or development of the patented invention or a product incorporating the invention.
Companies that are liable to UK Corporation Tax are eligible for the Patent Box scheme. This includes UK resident companies and non-resident companies that trade in the UK through a UK permanent establishment.
A company must have significantly contributed to the creation of or performed a significant amount of activity to develop the patented invention. As such, the Patent Box scheme aims to reward companies actively involved with R&D.
What if my company is the member of a group?
If your company is a member of a group, it may also qualify if it or another company in the group has undertaken qualifying development for the patents, as outlined above.
If your company is a member of a group, it must:
- Actively own the patented invention; and
- Take a significant role in managing its whole portfolio of eligible patents.
What IP is eligible?
Qualifying IP rights are:
- patents granted by the UK Intellectual Property Office (UKIPO);
- inventions not granted a patent by the UKIPO solely on national security or other grounds (but otherwise valid);
- patents granted by the European Patent Office (EPO);
- patents granted by the following national European patent offices: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia and Sweden; or
- other rights specified by Treasury Order, such as plant varieties, data exclusivity and supplementary protection certificates.
It should be noted that designs, trademarks and copyright are not eligible IP rights.
What income qualifies for the reduced tax rate?
Not all income qualifies for the Patent Box scheme. To be eligible for the preferential tax rate, the income will need to be derived from:
- the sale of patented items or those that incorporate a patent;
- the licensing of patent rights;
- the sale of patent rights;
- income from any compensation or damages from the infringement of owned rights.
How can I claim?
A company must make an election to benefit from the preferential rate of corporation tax from the Patent Box. This is done in the calculations accompanying the company tax return or separately in writing.
A company wishing to benefit from the Patent Box must make its election within two years after the end of the accounting period in which the relevant income and profits arose. This election continues until it is revoked. However, it should be noted that if the election is revoked, a company cannot re-elect into the scheme for another five years.
What if my patent application is still pending?
If your patent application has not yet granted and is still pending before one of the eligible patent offices, the benefit of the Patent Box can still apply. Providing a company has elected into the Patent Box scheme and has submitted a pre-grant election, the benefit accrues while the patent is pending and can be claimed when the patent grants.
The tax relief can be claimed on profits made up to six years prior to the grant, provided the above-mentioned election was in place for those accounting periods.
How can Murgitroyd help?
If you would like to find out more about the Patent Box scheme and how your company could benefit from it, please contact Murgitroyd. Further information is also available at https://www.gov.uk/guidance/corporation-tax-the-patent-box.
If you require any further information or assistance in connection with any of your intellectual property, or the intellectual property of your business, then please contact Murgitroyd.