Patent Box and R&D headlines

The Patent Box scheme came into effect on 1 April 2013. Companies who elect into the regime will benefit from a reduced rate of corporation tax on profits generated from qualifying patents.  The effective rate of tax for the first year (for large companies) will be 15.2%, falling gradually to 10% by 1 April 2017.

Although it will take some time before uptake of the scheme is known with certainty, initial responses from the business community have been generally positive with the number of overseas companies filing patents in the UK increasing.

Concerns have been voiced by the German finance minister that the UK Patent Box regime (along with similar schemes in other European countries) result in unfair competition for foreign investment.  The UK Government is yet to comment.

Patent Box – some common issues

Whilst the Patent Box regime offers some attractive tax savings to companies electing into the regime, there are a number of conditions to be met and some complex calculations which will need to be carried out in order to claim the relief.  Common problems faced by companies looking to take advantage of the regime include:

A patent registered in the name of an individual owner of the company.  Even if this is the only company exploiting the patent, if there is no license Patent Box relief will not be available.  In order to qualify the company would need to hold an exclusive license to use the patent.

The accounting system and records may not be capable of identifying relevant income and costs relating to patents.  Accounting systems may need to be adapted to help maximise the amount of profit benefiting from the preferential Patent Box tax rate.

Group licenses not meeting the definition of an exclusive license for the Patent Box regime.  In this case licenses should be reviewed and amended if necessary.

Research & Development

Tax relief for qualifying R&D expenditure by small and medium sized enterprises is currently available at a rate of 225%.  This effectively gives a tax deduction of £2.25 for every £1.00 spent on qualifying R&D activities.

Loss making companies can choose to claim relief by way of R&D tax credits which results in a cash sum paid to the company by HMRC, currently at a rate of 11% of the loss surrendered.

Large companies are able to claim tax relief of 130% of qualifying expenditure.  As an alternative a more generous Above The Line (ATL) R&D credit was introduced from 1 April 2013.  Previously expected to be at a rate of 9.1%, George Osborne announced in the 2013 Budget that the ATL rate will instead now be 10%.  Companies can choose to continue claiming R&D relief under the current large company scheme, but the ATL credit will become mandatory on 1 April 2016.

Don’t miss out!

The government continues to promote R&D tax reliefs and the new Patent Box regime.  The tax reliefs are generous and present many companies with the opportunity to significantly reduce their UK corporation tax bill.  Don’t assume that these reliefs won’t apply to you, R&D tax credits can be successfully claimed by companies in many different industries not just the traditional laboratory based companies.  Many companies are now considering patent registrations just to benefit from the Patent Box regime.  Even though the scheme is underway it is not too late to benefit.  If you’re doing something innovative, developing new products or services, improving existing products or procedures or carrying out a project which seeks to achieve an advance in science or technology, then you may be able to benefit from R&D tax reliefs or Patent Box.

For further information please contact Sarah Brock on 01932 830664 or email sarah.brock@wardwilliams.co.uk