13 December 2012
Press ReleasesConfirmed in the 2012 Budget, the Patent Box regime is set to have a major impact on technology and manufacturing businesses when it commences next April.
UK companies taking advantage of the incentive will pay less corporation tax with the rate reducing to just 10% on profits generated from patents or similarly protected innovations. The legislation is expected to encourage UK businesses to invest in research and development and use patents to further their commercial interests.
Sharon Bedford, Business Tax Partner at James Cowper Kreston LLP says: “Patent Box is a fantastic opportunity and companies should obtain advice from their accountants and patent attorneys to help define their strategy. Most importantly they need to act now to ensure they maximise returns.”
Evidence of how Patent Box will enhance the competitiveness of the UK tax system for high-tech companies came the day after the Budget when GlaxoSmithKline said that as a direct consequence of the Chancellor’s announcement, it would be investing £500 million in the development of its UK manufacturing facilities.
Sharon says: “The regime will not just apply to patent royalties and similar license revenues, but also to the sales of complex manufactured products including just one patented component. Worldwide income that gets taxed in the UK will be covered by the scheme. Both existing and new patents will be included and Intellectual Property must be registered in the UK or Europe to qualify.
“Benefits from the Patent Box are expected to bring advantages to businesses of all sizes, and will be phased in over a five year period. In the first year the proportion of relevant profits to which the 10% rate will apply is 60% and this will then increase annually to 100% from April 2017.”
The legislation puts in place a framework explaining how businesses can calculate the proportion of profits that are attributable to qualifying intellectual property. However, James Cowper Kreston is warning that maximising the opportunity to invest in R&D and benefit from the new regime is not going to be straightforward. Most significant amongst a number of key issues to be tackled are patent ownership requirements.
Sharon explains: “Many companies are expected to seek to secure patents on innovations where they perhaps previously may not have bothered. This could lead to backlogs at the Patent Office. A company cannot get tax relief whilst the patent is pending but back relief will be available after it is granted, so the sooner the application is made the better.
“There is a structured approach to the calculation of the claim and this will mean that it is important companies identify streams of income that arise from qualifying IP. The calculation is particularly complex for businesses simultaneously claiming R&D tax credits and early planning will be required if maximum tax advantages are to be achieved. For companies in both UK and International groups, it may be necessary to consider how IP is held and managed within the group.”
Sharon concludes: “With Patent Box now less than 12 months away it is clear that those who act now will secure a significant competitive edge.”
