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The Patent Box tax regime presents a real tax-saving opportunity for many companies, say Sarah Brock of Ward Williams Accountants.

What is Patent Box?

In essence Patent Box is a new tax regime that will allow UK companies to apply a reduced rate of Corporation Tax to profits attributable to patents and certain other intellectual property (‘IP’).   The scheme mirrors others already in place in Europe, and is intended to encourage companies to locate high value jobs and activity associated with development, manufacture and exploitation of UK patents.
 
The Patent Box regime will be phased in gradually from 1 April 2013 with an effective rate of 15.2% applying to qualifying profits in 2013/14, falling to 10% from 1 April 2017 onwards. 

The scheme will apply to worldwide income earned by UK companies from existing and new UK- and European-registered patents and certain other IP.  In order to qualify it is important that the company actively manages and uses the IP in its business.  Companies passively holding IP will not qualify.

What Types of Income Qualify for the Reduced Tax Rate?

The types of income that will qualify include:

• Income from sale of items in respect of which a qualifying patent right held by the company has been granted;
• Income from sale of items incorporating one or more qualifying items ;
• Income from sale of items that are wholly or mainly designed to be incorporated into qualifying items, for example spare parts such as cartridges;
• Licence fees or royalties in respect of qualifying IP;
• Proceeds of sale of IP;
• Damages for infringement;
• Other compensation such as insurance.

Importantly, companies seeking to claim the protection of Patent Box must also fulfill a development condition which means the company must have been involved in the creation of the qualifying patent.  The point of the development condition is to make sure that the Patent Box regime only applies to companies that have been genuinely involved in the research and development that led to the creation of the patented invention.

How can My Company Benefit?

Companies with existing patents will be able to elect into the regime and, subject to fulfilling the development and active management conditions, will be able to benefit from the reduced rates of Corporation Tax from 1 April 2013.

Companies not currently holding any patents should NOT assume that Patent Box won’t apply to them.  Many companies may have products or processes, for which a patent application could be made.  The tax benefits of the new scheme are attractive and make consideration of such an application well worthwhile.   The patent registration process can take at least 12 months so it is important for companies to act now.

Patent Box presents many companies with the opportunity to significantly reduce their UK Corporation Tax bill.  Companies should take action now to understand how they can benefit from the regime and what business changes might be advantageous prior to the rules coming into effect.

Ward Williams specialises in Patent Box and Research and Development claims.  For more information please telephone 01932 830 664 or email sarah@wardwilliams.co.uk.