For many years the UK government has aimed, through a number of schemes, to encourage businesses of all kinds to focus on innovation. Whether it’s science, technology, healthcare, or any other type of new system or process, firms have a range of inducements to invest in new methods and products.   

The Patent Box is one of the key planks of that strategy. Introduced in 2013, the Box is a tax incentive scheme which offers companies an additional deduction in calculating taxable profits, with the effect that the relevant intellectual property profits are taxed at a reduced corporation tax rate of 10%. Under the terms of the scheme, Patent Box relief was introduced over a period of four years, and so full relief on all Patent Box profits came into force in 2017. 

The benefits of the Patent Box

Companies can benefit from the Patent Box through legal ownership of a patent or through holding an exclusive licence to commercially exploit a patent. As with other similar schemes, there are eligibility criteria that successful businesses must meet. To qualify, patents must be granted by the UK Intellectual Property Office, the European Patent Office, or specified EEA countries.

Take note: the regime explicitly excludes patents granted by patent offices in France, Spain, Italy, the US, and Japan. 

However, there’s no doubt that claiming Patent Box relief isn’t something that anyone with a calculator can do. There are aspects to the process that will require you to talk to a suitably qualified accountant. And it’s also worth noting that an election into the Patent Box regime must be made by the company within two years after the end of the relevant accounting period in which relief is claimed.  

A company can elect in early, before a patent has been granted, to enable the company to claim tax relief on qualifying profits generated in the period from filing the patent application and the patent grant – the patent-pending period. The accumulated relief is claimed in the tax return for the year the patent is granted 

The changes to come

The scheme is changing, however. The Patent Box rules were amended on 1 July 2016, although grandfathering provisions will apply until 30 June 2021. The main change was to add a link between the patent on which the relief is being claimed and the company carrying out the R&D. There are also some additional administrative requirements in calculating the relief available 

It’s certainly true that while applying for the Patent Box can appear daunting, working with the right adviser can make it a far less demanding and complicated process. If you’re in need of advice or support in this or any other area, Paul Beare Ltd is right here for all your needs. You can contact us for help from tax and payroll to accounting and banking.