From 1 April 2013, the Patent Box allows companies to benefit from a lower rate of Corporation Tax on profits earned from their patented inventions and certain other innovations.
Your company may benefit if it holds a patent granted by the UK Intellectual Property Office, the European patent office or certain countries in the European Economic Area, undertakes qualifying development activities and generates income from one of the following sources:
- selling patented products - that is sales of the patented product or products incorporating the patented invention or bespoke spare parts
- licensing out patent rights
- selling patented rights
- infringement income
- damages, insurance or other compensation related to patent rights
Your company may also benefit from a tax saving on the ‘notional royalty’ of using a manufacturing process that is patented or providing a service using a patented tool.
The regime will be phased in for qualifying income generated from 1 April 2013 and the full amount of the benefit will become effective from 1 April 2017. During the interim period, you will need to apply an appropriate percentage to the profits your company earns from its patented inventions.
The appropriate percentages for each financial year are:
- 1 April 2013 to 31 March 2014: 60 per cent
- 1 April 2014 to 31 March 2015: 70 per cent
- 1 April 2015 to 31 March 2016: 80 per cent
- 1 April 2016 to 31 March 2017: 90 per cent
- from 1 April 2017: 100 per cent
The actual saving is generated by calculating a and subtracting this from your taxable profits. Your accountant or tax advisor will be able to assist with the formula required to calculate the deduction.
There is further guidance regarding the scheme qualifications and how exactly the deduction is calculated on the HMRC website Patent Box Scheme claims
If you are unsure whether your company will qualify for the Patent Box scheme, or for advice on other corporation tax matters, please contact us.
