The UK corporation tax rate has been raised to 25% starting from April 1, 2023 (previously 19%). This change has increased the potential tax savings for companies that qualify for patent box from 9% to 15%, as they benefit from a 10% tax rate on patent related profits.
I am not yet claiming patent box - where do I start?
For companies that are not currently claiming patent box, it is worth considering if the following criteria apply to your business:
- You own patents or other qualifying intellectual property (IP) in a UK trading company
Even if your business doesn't currently own any patents, you may want to explore whether you have developed patentable technology. We can work with patent attorneys to help you obtain patents that can provide future patent box benefits. Registering patents in a different group company from the UK entity that funded the development doesn't necessarily prevent you from making patent box claims. We can assist in assessing and documenting eligibility for such groups. - You have some research and development (R&D) activity in the UK, either currently or historically
If overseas group companies support R&D led by the UK entity, we can determine if the arrangement falls under the definition of ‘Externally Provided Workers’, which can help you claim your full patent box entitlement and potentially improve your current R&D claims. - You generate a profit margin in the UK from income streams related to patents
Higher profit margins generally result in a greater proportion of profits being taxed at the favorable 10% patent box rate.
I am already claiming patent box - what should I do?
Due to the increased tax savings, companies may be more inclined to reassess their eligibility for patent box. If you are already claiming, it is advisable to review your claims with a fresh perspective, considering the following:
- Methodology
Businesses already claiming should ensure that their methodology for allocating company profits to the patent box is appropriate and well-documented, considering the different cost base associated with each income stream related to IP. - Value chains
It's also important to review the value chains within the group, especially when customer sales, IP, and R&D are spread across different entities. When conducting commercial restructuring, it's essential to consider patent box to identify opportunities and pitfalls in advance. - Royalty rates
For intragroup IP licensing, it's worth questioning whether royalty rates reflect the full value of the IP and are documented for both transfer pricing and patent box purposes. - Global tax considerations
Additionally, when reviewing global tax considerations, including the OECD’s Pillar 2 framework, it's important to consider the effective tax rate impact of patent box.
How we can help
Our team has many collective years’ experience in supporting businesses across a number of areas relating to patent box and R&D, including;
- Identifying R&D activity that may lead to the creation of patentable technology
- Restructuring value flows to appropriately commercialise the IP
- Developing and documenting a robust and repeatable patent box methodology
We would welcome a conversation with you about your specific requirements, if you would like to discuss further, please contact Sarah Picken, or speak to your usual PwC contact.
*Qualifying IP refers to directly held or exclusively licensed UK or European Patent Office (EPO) patents, patents registered in certain European Economic Area (EEA) countries, and rights similar to patents (relevant for human and veterinary medicines, plant breeding, and plant varieties).
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