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Innovating companies can gear up for clever tax benefits
Innovation companies can now maximise the advantageous tax regime that’s been brought in for patented products.
The Patent Box tax regime came into effect in April and it gives companies a reduced 10% corporation tax rate on the proportion of profits derived from the exploitation of patents.
It applies to patents granted by the UK Intellectual Property Office, the European Patent Office or certain other specified EEA countries.
First announced in 2010, the reduced corporation tax rate is designed to encourage businesses to develop and actively exploit patents, rather than sitting on intellectual property (IP) as often happens. The new regime will be phased in over the next four years, with tax savings gradually rising from 60% of potential benefits in year one to the full 100% from April 2017.
The Government has introduced the Patent Box to encourage innovative businesses to invest in the UK and say it should improve the competitiveness of the UK tax system for high-tech companies.
Companies can only benefit from the Patent Box if they are liable to Corporation Tax and make a profit from exploiting patented inventions; they must also own or hold an exclusive license for the patents and must have undertaken qualifying development on them.
But there are opportunities for companies beyond the original patent, as the tax relief is going to be available for profits on whole products, even where the patented item is only a small part of that whole. It is also going to extend to profits earned worldwide, even if the product is patented in just the UK.
As well as providing relief on IP income, the tax relief will also be allowed on license fees received on a patented product or process.
The other bonus for companies is that the Patent Box relief can be backdated to profits earned up to six years prior to the granting of the patent. This should help fund the cost of patenting where there is a short lifespan on a product.
Because it does not apply to non-exclusive licenses, exclusive licenses falling within the Patent Box will be far more valuable to potential licensees. The tax relief can also be claimed for related non-patent IP, such as trademarks and registered designs, so they do not need not be exclusively licensed.
Explained corporate law expert Brendan O’Brien: “There is scope for companies with activities that would not currently fall within the Patent Box to review their strategy and if necessary to modify their activities so that they qualify – although, as with all things, everyone needs to weigh up the admin burden of opting in to such a scheme.”
He added: “It’s a complex area, but any company involved in innovation and patenting should be reviewing what they are currently doing and looking how they might benefit from the new regime.”
This information is not intended as legal advice