With Government corporation tax set at 23%, for startups this can be a hefty price. Nick Shipp gives us the low-down on a new scheme that could reduce your tax outgoings.
What is the Patent Box?
The Patent Box allows companies to enjoy a reduced rate of corporation tax of 10% for profits from the exploitation of patented inventions and other forms of qualifying intellectual property (IP). That’s a whopping discount on the main corporation tax rate for 2013 which is 23%.
Is HMRC getting soft?
Of course not! The Government hopes that a reduction in tax for innovative companies will not only keep such British companies in the UK, but will also attract innovative companies from abroad to run their taxes through the UK, thereby bringing more cash into the coffers of UK PLC.
So how do we qualify for this tax relief?
As the name suggests, you need qualifying IP, e.g. a patent. However, it’s not only UK patents that qualify for the Patent Box. Patents granted by the European Patent Office qualify as do patents granted in certain other European Economic Area states.
Overseas profits
Most of my profits come from US sales so the Patent Box isn’t much help is it?
In fact, profits from worldwide income deriving from the exploitation of inventions for which there is a qualifying patent are included in the Patent Box, even if there is no patent protection in the territories where the invention is being exploited. All you need is a UK (or qualifying) patent that covers what you are doing and the profits need to derive from products incorporating the patented invention.
I’ve just filed a patent application, can I claim the tax relief now?
Hold your horses. The reduced tax rate only applies if you have a granted patent, not a pending application. However, once your patent grants you may be able to claim tax relief for income generated from exploitation of the invention for a period of up to six years before the grant of the patent (yes, patent applications can be pending for that long!).
Faster payments
I want a low tax bill now, not in six years!
It is possible to accelerate the prosecution of your patent application so that it grants sooner. A common tactic is to file a divisional patent application directed to a narrow concept that covers what you are doing, which due to its narrow scope of protection should proceed swiftly to grant and allow you to obtain the benefits of the Patent Box. You can then continue to pursue the broad inventive concept with your original patent application.
This all sounds great, but I don’t have any patents
Even if you don’t have any patents and don’t see specific value from patents in terms of their primary goal of providing you with a monopoly right for a particular invention, many companies are filing patent applications to gain the benefits of the Patent Box.
There is a general misconception that patents are only granted for great leaps forward in innovation. This is not in fact the case.
If the Patent Box sounds appealing it might be worthwhile talking through your business with a patent attorney to see if you have created any patentable inventions.
For more information see the HMRC website, or register for a free event on the Patent Box hosted by Kilburn & Strode LLP at Google Campus on 17 October 2013.