Patent Box – an early Christmas present?

Posted on October 24, 2013

Do you have any registered or pending patents? Are you currently developing an innovative and unique product or process? Is there anything you do that could potentially be patented? If so, then Patent Box tax legislation, which came into effect from 1st April 2013, could significantly reduce your company’s tax bill to an effective rate of 10% by 2017.

What is it?

The Patent Box allows companies to apply a lower rate of Corporation Tax to profits earned after 1st April 2013 from its qualifying patents and certain other intellectual property. The relief is being implemented in stages but will eventually result in a lower rate of Corporation Tax to be applied of 10%.

The Government’s aim of the Patent Box is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products.

How do I qualify and which patents are eligible?

To qualify for the relief your company must own or exclusively license-in the patents, have undertaken qualifying development on them, and performed significant management activity regarding the development or exploitation of the patented innovation or product using it.

For a company to be within the Patent Box it must hold a patent granted by the UK Intellectual Property Office, the European Patent Office or certain other EEA State Patent Offices. Your company may also benefit if it holds certain specified intellectual property rights such as medicinal or botanic innovation rights.

The benefits of the Patent Box will not just be available to legal owners but will extend to exclusive licence holders and companies entitled to exploit patents through partnerships, joint ventures and cost sharing arrangements.

Qualifying income?

The following types of income will qualify:

  • Income from the sale of patent protected products
  • Licencing out patent rights
  • Selling patented rights
  • Infringement income
  • Damages, insurance or other compensation related to patented rights
  • Income from the gross sale of products that incorporate the patented invention or bespoke spare part.

Your company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool.

R & D

Companies qualifying for the Patent Box are also likely to be undertaking significant research and development and qualifying for R&D tax relief. The Patent Box legislation is designed to complement this relief. So companies will be able to benefit under both regimes.

If you would like to discuss any of the issues relating to Patent Box, please do contact us.

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