Corporation tax rates for large companies are coming down to match
the 20 per cent rate for profits under £300,000. However, the new Patent
Box legislation could allow your company to claim an even lower rate,
10 per cent, if those profits are generated from the use of patents.
The aim of the Patent Box is to encourage innovation in the UK, by
giving incentives to companies to locate and retain intellectual
property within the UK.
The new rules will allow companies and groups of companies, to
benefit from a lower rate of corporation tax on profits, derived from
the patent, where they either own or have exclusive licences to exploit
the patent. This profit could be from the receipt of licence fees or
royalties, income from infringements, revenue from the sale of products
incorporating the patented component or products manufactured using a
process which includes a patented element.
The new legislation will be phased in over a four-year period that
began in April 2013. It is available for existing patents granted by the
UK Intellectual Property Office, the European Patent Office and other
EEA State Patent Offices. In addition, the legislation will also allow a
company to begin accruing the benefits of the new rules as soon as the
patent application is filed, although the benefit will not be received
until the patent is granted.
Sounds too good to be true? There are some complexities to trip up
the unwary, but these problems can be overcome if steps are taken in
advance. Therefore, action needs to be taken sooner rather than later.
From discussions with companies we have identified some common
issues, which in some cases could result in the company losing the
reduced rate of tax. There are also some administrative burdens that may
cause problems. These issues include:
· The patent is registered in the name of the individual owner of the
company. Even if the company is the only company exploiting the patent,
if there is no licence there will be no Patent Box. The company does
not own and does not have an exclusive licence to use the patent.
· The accounting system and records may need to be adapted to
identify the relevant income and costs that relate to the patent. The
aim is to prove the maximum amount of profit that can benefit from the
10 per cent Patent Box rate.
· The group licences do not meet the definition of an exclusive licence for the Patent Box legislation.
So, what should you do now?
If your company exploits a patent then it is essential that you speak
to your tax adviser about the new Patent Box legislation. These
discussions will allow you to establish if Patent Box is relevant and
worthwhile for your company. It will also ensure that the company meets
the requirements for the lower tax rate and that, in cases where the
relevant patent being exploited is under licence, the licence meets the
definition of an exclusive licence.