First introduced in April 2013 and recently amended in the Finance Bill 2015/2016, the Patent Box provides an additional tax reduction (complementary to the R&D Tax scheme) for companies with patentable products / services who are still paying corporation tax after their R&D Tax claim.
The scheme provides for a headline rate of just 10% corporation tax on the profits derived from patented products / patent license income, however in practice the saving is less than this and the calculations more complex with the tax saving reduced according to marketing and other overheads.
Where only part of a firms’ product range is patented, the tax saving can be done on a ratio approach (ratio of patented product turnover to non-patented product turnover), however it is usually advantageous to determine the profit per product range since a patented product may attract a higher profit margin than non-patented products.
Where the end product is not itself patented but the process to manufacture the product is patented then there is still a taxation saving albeit usually somewhat less as based on the notional royalty value attributable to the patented process.
Patents need only to be granted in the UK (or one of a number of European countries) regardless of where sales are made for the product / service.
Although it is not possible to claim a Patent Box benefit until after the patent has been granted, relief can then be claimed for profits made up to six years prior to grant (so long as the company has elected in for the accounting period in which those profits were made).
Timing of when to elect into the Patent Box scheme is critical and requires specialist advice.
It is possible to make a Patent Box loss, it is important carefully to consider whether to elect in to the Patent Box at all, and to plan the timing of any such election. It is not uncommon for profits to be low or non-existent during the early exploitation of a patent. It may therefore be appropriate to elect in to the Patent Box at a point in the business life cycle when a Patent Box profit is available on the product(s) covered by a company’s patents. Any Patent Box loss will need to be set off against the Patent Box profit, so the Patent Box benefit may be greatly reduced or even eliminated as a consequence of having elected in to the regime too early.
Julia – above is taken from Kemp’s website – you may want to edit
For companies who already have a granted / pending patent and are needing a taxation advisor to help with election into the Patent Box scheme and/or Patent Box Taxation calculations please contact Senior Partner Julia May.
For companies who do not have a patent granted or pending but are considering applying for a patent then please contact Senior Technical Analyst Mark Graves for an initial discussion about the technical requirements / opportunities / fees for applying for a UK patent.