Patent Box: Out with the old and in with the new

From 1 July 2021 all companies will need to follow the “new” patent box rules. These rules add a 4th step - the R&D fraction - to the existing old rules. Additionally, mini profit and loss accounts (streaming) need to be prepared for different patent or product class.

The “new” rules have actually been around since 1 July 2016 so this change is only applicable to companies who entered into the patent box prior to that date and could remain under the simpler “old” rules until 30 June 2021.

The R&D fraction can result in patent box benefits being restricted or reduced as it compares in house and third party R&D spend with total R&D spend on developing the patents or patented products. Total R&D spend also includes costs of acquiring patents from third parties.  These costs are added cumulatively each year to arrive at the fraction.

Many companies will be unaffected with the fraction being 1/1. However there is an expectation that companies transitioning from old to new rules will already have been gathering the data to support their R&D fraction from as far back as 1 July 2013.

This means that companies who elected into the patent box regime under the old rules (ie they entered the patent box before 1 July 2016) should have been collecting the relevant R&D data since 1 July 2013 as they will now need it for their patent box calculations.

Patent box currently enables companies to have a reduced rate of corporation tax at 10% on profits derived from patents. The current mainstream rate of corporation tax is 19% set to rise to 25% in 2021.

Make sure you have all the right boxes ticked to maximise your potential on this valuable tax benefit.

Click here to read our fact sheet about patent box.

For more details contact Margaret Savory at msavory@jamescowper.co.uk or your usual James Cowper Kreston contact.