Patent Box makes the UK an attractive place to do business
The UK Patent Box will introduce a 10% tax rate on UK profits attributable to patented inventions. The new regime will be phased in over four years from 1 April 2013. This change is good news if you’re a company with patented IP in UK or a UK company that could patent their technology in the future. These new rules will benefit companies from a wide range of industry sectors. To give just a few examples, this will be applicable to companies manufacturing a wide range of items which include patented items such vacuum cleaners, stereo speakers, prosthetic limbs as well as services such as delivery of mobile phone communications.
How to take advantage of Patent Box
- If your company has patented inventions, you can benefit from the new regime. The patent box doesn’t extend to other categories of intellectual property such has trade marks and copyright.
- To qualify for the regime you must own one or more UK patents (or patents registered at the European Patent Office) or hold an exclusive licence over these types of patents.
- Your group must have performed significant development of the patented technology (which can include development under partnerships, joint ventures and cost-sharing arrangements).
- In some cases the claimant company must continue to be actively involved in decisions concerning the further development and exploitation of the patented invention.
- The 10% tax rate applies to your company’s worldwide profits attributable to the patented invention. Qualifying profits include profits arising from licensing, disposals of patent rights and the sales of products which include patented inventions.
- Profits falling within the patent box are calculated using a three stage formula:
- Stage 1 identifies profits attributable to qualifying income (e.g. profits arising from the sale of products which include patented inventions).
- Stage 2 deducts a ‘routine return’ equal to 10% of certain costs to leave residual profits attributable to intellectual property. This 10% has been reduced from 15%.
- Step 3 deduct profits attributable to brand rights based on a notional brand royalty. The resulting amount qualifies for the Patent Box.
- If you’re a company with a smaller amount of patent-related income you can take advantage of a simplified regime.
What does this mean for your clients?
You should determine how you can get the most out of the Patent Box by:
- identifying where you benefit from patented items
- thinking about which method of calculation of Patent Box profits (there are various choices available under the rules) is most advantageous, and
- considering whether you can patent types of technology that historically you may not have chosen to patent.
If you’re a multinational company, you should also consider whether to centralise patent ownership in the UK in order to maximise the benefit obtained from the regime.