Patent Box tax relief rewards UK companies that are driving innovation and developing new patented inventions.
Speak to our expert team today about whether you're eligible for Patent Box relief.
Book herePatent Box is designed to encourage companies to keep and commercialise intellectual property in the UK. Patent Box tax relief rewards UK companies that are driving innovation and developing new patented invention by reducing their Corporation Tax.
Despite the Patent Box scheme offering substantial tax savings to companies that innovate and develop valuable IP, it’s still widely overlooked by many UK businesses.
TBAT Innovation’s R&D tax specialists are here to provide comprehensive support, assisting businesses in both electing into the Patent Box scheme and handling the intricate process of calculating what you’re entitled to receive.
Patent Box is a UK tax relief scheme designed to encourage companies to keep and retain intellectual property (IP). First introduced in 2013 and fully phased in by 2017, it supports innovation by allowing companies to apply a reduced 10% corporation tax rate to profits earned from qualifying patented inventions.
Not all businesses can claim on the Patent Box scheme. Your company must meet HMRC’s specific criteria to ensure you’re eligible. To qualify, your company must:
In practice, this means that you do not need to own the patents to qualify for the scheme. Many patent holders license their technology to then pass on to other parties, for them to develop. Your company can still qualify for the scheme without being the patent holder.
Patents can only qualify if they are granted by the UK Intellectual Property Office, the European Patent Office, or specified EEA countries. The regime notably excludes patents granted by patent offices in France, Spain, Italy, the US, and Japan.
Companies must elect into the Patent Box to apply the lower rate of Corporation Tax. An election into the regime must be made by the company within two years after the end of the relevant accounting period in which relief is claimed.
A company can elect in early, before a patent has been granted, to enable the company to claim tax relief on qualifying profits generated in the period from filing the patent application and the patent grant – the patent pending period. The accumulated relief is claimed in the tax return for the year the patent is granted.
The Patent Box calculation works by isolating the portion of a company’s profit that relates to the patented innovation and then applying a deduction to achieve the 10% effective tax rate. Here’s how it works:
The first step is to determine which parts of your company’s profits qualify as intellectual property (IP) income. This can include sales from patented products, licensing income, royalties, infringement income and damages, insurance or other related compensation. When the income is coming from a mix of patented and non-patented areas, the company will need to ”stream” the income to separate the IP related profits.
Once you have identified your IP-related income, you need to remove the elements that do not directly relate to the patented innovation. This can include profit a business would normally expect to earn from routine business activities.
The final stage is to apply the Patent Box deduction within the Corporation Tax calculation. This deduction adjusts the company’s taxable profit so that the portion linked to patented innovation is taxed at the reduced 10% rate, rather than the standard Corporation Tax rate.
Patent Box and Research and Development (R&D) Tax Relief work hand in hand with each other. While both offer tax incentives, they differ in their focus. R&D tax relief rewards businesses based on their R&D expenditures, providing tax relief or credits and Patent Box offers a reduced tax rate on profits derived from UK or specific European patents.
TBAT Innovation are experts in R&D Tax Credits and innovation support. We specialise in helping businesses get the most out of their intellectual property through incentives like the Patent Box and R&D tax relief. We know how much time and hard work goes into developing your innovations, and we are here to ensure you’re rewarded for your efforts. If you’d like to discuss the Patent Box scheme with our experts, get in touch today to book a free 1-2-1 consultation.
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