What is the UK Patent Box?
The Patent Box regime is a new form of corporate tax relief coming into force on 1 April 2013.
This regime will be available to UK companies which, alone or as part of a group, actively exploit innovations that are protected by patent rights and/or biotechnology-specific rights.
The reduction in corporation tax for patent income is designed to make the UK’s tax system more competitive and appealing as a place for business innovation and growth. The ‘Patent Box’ regime gives companies a new incentive to protect their innovations and commercialise their patents.
The ‘Patent Box’ regime applies a 10% corporation tax rate to profits attributed to patents, with the benefit being implemented in stages. In April 2013, 60% of the benefit will be available, increasing by 10% per tax year until April 2017, at which point the fully reduced 10% rate will be effective.
Who should be interested and why?
UK companies that develop innovative products, whether or not those companies have ever previously applied for patents.
The Patent Box provides a strong incentive to obtain patents for as large a proportion of a company’s product range as possible. These patents need only be UK patents to obtain a reduced rate of corporation tax on profits generated around the world by the UK company.
The conventional reason for patenting is to prevent competition, and therefore protect a company’s investment in their innovations. However, the patent process can be expensive, particularly if attempting to cover a number of countries, and the financial benefit of a patent is typically uncertain and difficult to quantify. For this reason, the conventional reasons for not patenting are that it’s too expensive, and the return-on-investment is uncertain. In particular, it might be that no-one would want to copy the innovation anyway, and the patent that is granted may be too easy to design around.
Under the Patent Box regime:
There is a definite financial benefit (assuming that a profit is made)
- It doesn’t matter how broad the patent is, or how effective the patent is in preventing competition
- There is no obligation to try to enforce the patent
- There is therefore now a significant financial incentive to obtain UK patents for as many products as possible, as soon as possible.
What needs to be done?
Steps should be taken to ensure that the Patent Box is utilised, and its financial benefits are maximised.
These steps include:
- Seeking advice regarding the potential financial benefits that may be realised using the Patent Box regime
- Ensuring that as many products as possible are covered by patents that have already been obtained, or applied for, by the company
- Applying for patent protection for any new innovations that could be included in products in the future
- Arranging ownership and licensing in a way that maximizes the financial benefits
5 February 2013