Patent Box is a UK incentive that allows companies to reduce their Corporation Tax liability on profits earned from patented inventions. The relief is designed to encourage companies to invest in R&D and protect their intellectual property through patents.
We’ve asked our R&D Incentives Director, Tom Whitworth, to explain in more detail what Patent Box is, who can claim and the process of making a claim, so to find out more, keep reading!
Take it away Tom
Patent Box is a tax incentive for UK businesses aimed at encouraging companies to invest in the development of innovative new technologies, offering a reduced rate of Corporation Tax on the profits that patented products or processes generate.
With Patent Box, companies who are eligible can apply a lower rate of Corporation Tax of 10% of profits earned from qualifying intellectual property (IP) – patents. This reduced tax rate applies to income generated from sales, licensing, or other commercial exploitation of patented inventions.
Patent Box is intended to provide a substantial financial incentive for companies to innovate and invest in R&D, as well as to support the growth of businesses across a range of sectors. It can be an effective way for companies to reduce their tax burden and reinvest profits into further R&D activity, which can help to drive future growth and competitiveness.
Who can claim?
Now you have a better idea of what Patent Box is, let’s run through the criteria that a business need to meet to be able to make a claim:
- The company must be liable to pay Corporation Tax in the UK.
- It must own or exclusively license qualifying IP.
- The company must hold a qualifying patent from the UK Intellectual Property Office or the European Patent Office.
- The company must prove that a significant proportion of the profits arising from its patented products or services are a result of its own R&D activities.
Something that may come as a surprise to some is that loss-making companies could also benefit from Patent Box relief. As the relief allows eligible companies to claim a reduced rate of Corporation Tax on specific profits earned from the exploitation of qualifying patented inventions, if a company is making losses, it may still be able to create a trading loss to be relieved against overall future profits. Furthermore, if you’ve applied for a patent but it has not yet been granted, you can accrue the tax relief from the date you applied and claim it later once the patent has been granted.
How you can claim
To claim Patent Box, the below steps need to be followed:
Identify the qualifying intellectual property
The company must identify any patented inventions that qualify for Patent Box relief. A qualifying patent must be granted by the UK Intellectual Property Office (UKIPO), or the European Patent Office (EPO) and cover a product or process that was developed in-house.
Calculate the relevant profits
The company must then calculate the profits that are eligible for the reduced Corporation Tax rate of 10% This includes profits from selling products that use the patented technology, licensing the patent to others, selling it or even generating income from a patent infringement settlement.
Apply the reduced tax rate
The company can then apply the reduced Corporation Tax rate of 10% to the relevant profits.
File a tax return
The company must then file a Corporation Tax return and claim the Patent Box relief. Our approach when working with our clients on the Patent Box claims is to provide details of the qualifying patents, the eligible profits, and the amount of tax relief claimed.
Here to help
Do you own or exclusively license a patent? If so, you could make significant tax savings, and you need to talk to us! If you are looking to make a claim but are unsure where to start, please give our R&D Incentives team a call on 0114 698 6960.
