The proposed ‘Patent Box‘ provides a preferential tax rate for profits arising from patents.
Politicians on all sides have long recognised the important contribution made by intellectual property rights to the UK economy. Indeed, around 8% of GDP is generated by industries supported by intellectual property. But tax is applicable to the profits received from patents, such as through licence agreements and transfer or sale of patent assets.
It, therefore, comes as no surprise that the Government wants to encourage those who invest in the research and development which results in new inventions and better, more profitable products. Innovative businesses will be pleased to hear that the Government intends to do this by introducing a substantial reduction in corporation tax for profits derived from patented inventions. From April 2013, such profits will be taxed at only 10%, less than half of what most companies currently pay.
Profits qualifying for the special rate include royalties or licence fees collected from others, profits from products incorporating the invention, and damages paid by infringers. Companies will be also able to claim retrospectively for profits up to four years before grant, whilst “patent pending”.
Because a patented invention might form only a small part of a profitable product, the profits arising from the patented invention are likely to be rather difficult to calculate. Instead of attempting this complex and probably impossible task, the Treasury is proposing a formulaic approach, simply assuming a “routine” profit margin of 15% of the cost of making a product, and allowing any additional margin to be attributed to the technical advances protected by patents.
The Patent Box provides yet another compelling reason to patent your invention. As well as protecting your invention from copyists, your tax bill may be substantially reduced by making sure that valid patents are in force covering your profitable products.
Author
