What Is The Patent Box Regime?
The UK government implemented the Patent Box tax structure in 2013. The regime offers a lower rate of corporation tax on earnings from patented discoveries in order to encourage businesses to invest in research and development (R&D). In this article, we will explore what the Patent Box regime is, how it works, and what kind of projects it could be used for.
How does the Patent Box regime work?
The Patent Box regime allows companies to apply a lower tax rate of 10% on profits earned from the exploitation of patented inventions. To be eligible, companies must hold qualifying patents, which can include patents granted by the UK Intellectual Property Office or the European Patent Office. Companies must also meet certain development and commercialization criteria, which are designed to encourage businesses to invest in R&D and bring new products and technologies to market.
What can the Patent Box regime be used for?
The regime can be applied to a variety of projects, including those in the engineering, technology, and pharmaceutical industries. For instance, a pharmaceutical business that creates a novel drug and secures a patent for it may use the reduced tax rate to offset revenues from sales of the medication. The regime may also be advantageous to a technological company that creates new hardware or software and obtains a patent for it.
What are the Patent Box eligibility criteria?
You must elect to be in the regime, and this must be done within 2 years after the accounting period in which the relevant profits and income arose. The election has effect from the start of the accounting period stated in a notice for electing in, and this will apply for all subsequent accounting periods until it is revoked. Careful consideration should be taken when electing out, however, as from that point a company must then wait 5 years before electing back in.
If your company is also claiming R&D Tax Relief, the Patent Box regime interacts with this by applying a restriction, if the company does not undertake its own R&D in relation to the patents. No restriction applies where there are no acquisition costs, and where all of the R&D is undertaken within the company or by third-party subcontractors.
Conclusion
In conclusion, the Patent Box regime is a tax incentive designed to encourage businesses to invest in R&D and bring new products and technologies to market. By providing a lower tax rate on profits generated from patented inventions, the regime can support a wide range of projects in various sectors.
Businesses should consult with qualified tax advisors to ensure that they meet the specific requirements of the regime and maximise the benefits it can offer. There are strict rules around the record-keeping for this regime so if you are considering electing in, it’s prudent to discuss this early with your advisor.
If you have any queries regarding the Patent Box or would like to discuss our services further, please don’t hesitate to contact Gina Gardner at gina.gardner@ballardsllp.com
Disclaimer.
This article has been prepared for information purposes only. Formal professional advice is strongly recommended before making decisions on the topics discussed in this release. No responsibility for any loss to any person acting, or not acting, as a result of this release can be accepted by us, or any person affiliated to us.
