THE PATENT BOX

There are many good reasons to ensure that your important inventions are protected. Now, another can be added to the list. From April 2013, businesses will be able to enjoy a lower rate of corporation tax on profits derived from patented inventions.

The new rules will be phased in over a period of time.  From April 2013, the rate of corporation tax on qualifying profits will be 14% for small companies. The rate will fall year-on-year, until the full discount to 10% applies to all companies from April 2017.

WHICH COMPANIES QUALIFY FOR THE DISCOUNTED RATE?

To qualify, your company needs to either own patents, or have patents exclusively licensed from others. Your company also needs to have undertaken “qualifying development”. This means that you need to have made a significant contribution to development. Interestingly though, the significant contribution does not have to be towards the invention itself, but can be a contribution to the development of a product incorporating the invention.

UK and European patents, and national patents in a number of European countries all qualify for the benefit of the patent box regime.

WHAT PROFITS QUALIFY?

Profits are eligible to be taxed at the lower rate if they are the result of selling patented products, or licensing patent rights to others. Damages or other compensation which is obtained from infringers in Court or otherwise is also counted.

Patents must actually be granted before the tax relief can be claimed, although a claim can be backdated to take into account the period in which the patent application was pending. It is also usually possible to accelerate a patent application to obtain early grant, in which case the relief could be claimed sooner.

SO HOW DO I TAKE ADVANTAGE?

Firstly, you need to ensure that any and all potentially patentable inventions are protected. This is of course good advice irrespective of any tax relief, and the further benefit of the patent box should substantially mitigate the cost of patent protection. Companies which have been put off applying for patents due to costs in the past should reconsider.

Albright IP act for a wide variety of businesses, from sole traders to large companies. We would be pleased to discuss your requirements with you. We are also happy to refer you to a suitable tax accountant if you need one. Please contact us now to discuss your situation further with one of our experienced attorneys.

⇒ Also see our article on Why Are Only 1,395 British Companies Using Lucrative Patent Box Tax Savings?