PATENT BOX A CLEVER WAY TO REDUCE YOUR TAX BURDEN

The government introduced Patent Box in April 2013 to reward the active exploitation of patented technology in the UK.

It aims to encourage companies to retain and commercialise intellectual property in the UK by allowing them to apply a lower rate of corporation tax to profits earned from their patented inventions.

By electing to use Patent Box, a company may effectively receive a 10 per cent tax rate, reduced from the current headline corporation tax rate of 19 per cent, on profits made from its patented inventions.

In principle, this tax reduction could easily “repay” many times over the cost of obtaining a UK patent and potentially generate a substantial cash injection to a business.

To be eligible for the effective corporation tax rate of 10 per cent, income will need to come from at least one of the following:

• The sale of patented products, or of products incorporating a patented invention

• The sale of spare parts designed for products containing the patented item (even if the spare itself is not patented)

• The licensing of patent rights

• The sale of patent rights

• Infringement income

• Damages, insurance or other compensation related to patent rights

• A 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

Who wouldn’t want to reduce their corporation tax bill by half on profits derived from exploiting patents that they own?

It’s a no-brainer. Yes, says Jemma Vaughan, Innovation and Technology Director at Cheltenham-based accountants and tax advisers Hazlewoods, but not nearly enough companies know about it or are claiming it.

According to the Office for National Statistics, in the tax year 2018–2019, 1,405 companies claimed relief under the Patent Box, and the total value of relief claimed was just £1.1 billion.

And of the companies that claimed in that tax year, 28 per cent were classified as ‘large’, but these companies accounted for the vast majority of the total relief claimed.

So what’s stopping smaller, innovative