Introduced in the UK in 2013, the Patent Box Regime is a tax incentive where businesses can make profits from their patents through a reduction in tax that is paid on the profits. The scheme has been designed to encourage innovation as well as research and development (R&D)
How Do Businesses Qualify for the Scheme?
If a business owns the patent licences in intellectual property (IP) right, then they will qualify for the relief. They will also qualify if they exclusively licence the rights to the patents and have also undertaken development that qualifies on the patents.
If the business is a member of a group then it might also qualify if another company with the group has undertaken qualifying development for the patent via a significant contribution to the creation or development of the patented invention or even a product incorporating the patented inventions.
An active ownership requirement also has to be met by those companies who are part of the group. So, even though your company doesn’t make every decision it is important that it takes control of a large portion of the management of the portfolio.
Do we need to make a profit from our own inventions in order to qualify?
There is no need to make a profit from your own inventions but often patent holders will license their inventions so others can develop it. Therefore, if you company possesses the licenses to use the technology of someone else’s technology, then it might be possible to benefit from the Patent Box regime, providing you meet certain conditions.
Therefore, you must have the rights to develop, exploit and defend rights in the patented invention one or additional rights that relate to the exclusion of all other persons. You must also have exclusivity throughout a national territory as a minimum as well as the rights to manufacture or sell within part of a country.
The Reduced Tax Rate – What Income Qualifies?
Not all income qualifies for the Patent Box scheme. In order to be considered eligible for the effective Corporation tax rate of 10%, the income will need to come from the sale of patented items or those that include a patent which could be the sale of spare parts. Income will also need to come from the licensing of patent rights as well as the sale of patent rights. As well as this, any compensation income or damages from the infringement of owned rights will also qualify.
The income that does not qualify for the Patent Box reduction includes an income that comes from regular activities and is earned regardless of patent rights. While income from market asset return which is money that is earned from branding as opposed to technological innovation will also not qualify.
Patent Box Corporate Tax Relief – How to Claim
In order to benefit from the reduced rate of Corporation Tax you will need to make an election and it will have to be done within two years after the end of the accounting period in which the profits and income were received.