If you have intellectual property which generates profit for your company, you may be entitled to pay a much lower rate of corporation tax in the UK.
From April 2013, corporation tax on profits derived from various Intellectual Property (IP) rights can benefit from a lower rate of corporation tax. The rate for such profits will be lowered each year, down to 10% from April 2017. This is a significant reduction from the normal rate.
This “Patent Box” has been introduced to encourage innovation and business in the UK – and it seems to be working already, with big names such as GlaxoSmithKline announcing huge investment in new facilities in the UK. However, there are potential benefits for all companies with IP, large and small.
Get in touch with your normal Mewburn Ellis contact if you’d like more information on this potentially highly valuable new system.
What IP do I need to benefit from the Patent Box?
The Patent Box applies to patents granted by the European Patent Office (EPO), or national patents in the UK, Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia or Sweden.
Other, less common, types of IP such as Supplementary Protection Certificates and Plant Variety or Breeder rights also give you Patent Box eligibility.
You do not have to have a UK patent to benefit from the Patent Box.
The Patent Box is generously designed. The patent in question needs to cover a product that you sell, or a component which is incorporated in the product. There are also provisions for profits not coming directly from a patented product – for example, where the patented invention is a new method of manufacture.
What profits can I pay the lower tax rate on?
The exact calculations are complex and we recommend that you consult an accountant on this. However, key relevant activities include worldwide income from sales, licence fees and royalties.
You do not have to have a patent everywhere (or indeed anywhere) that you sell your product to benefit from the Patent Box.
Profits from items which incorporate your patented product may also be eligible. For example, if you have a patented spark plug, profit from sales of an engine incorporating that spark plug will count for the Patent Box.
What if my company doesn't have any patents?
The Patent Box is available not only for patent owners but also those who hold an exclusive licence to a patent. So, even if you don’t have patents of your own you may be eligible!
To take advantage of this scheme in the future, it may be worth seeking advice from patent attorneys such as us regarding your new ideas and products, with whom you can discuss whether patents might be available.
My company hasn't made an invention for years - how can we benefit?
Although the Patent Box is intended to stimulate new R&D, if you already have patents which cover your products, you will be eligible for the Patent Box.
Additionally, many companies ignore potentially valuable new IP because they do not recognise when an “invention” has been made.
So, it may be useful to review the technologies and products with which you already work or your recent and ongoing product developments - there may be inventions which have not been recognised and which can be patented. Of course, normal requirements for patentability apply, so products which have been sold to the public are unlikely to be patentable.
For the future, keep the Patent Box in mind when developing new products or ideas. Contact your patent attorney early – there may be several patentable inventions in a single product idea or development and the financial benefit could be considerable!
Patents are expensive - how will I profit from having them?
Many companies have decided previously that patents are not worthwhile for their businesses. Maybe the costs seemed too high. Maybe the scope of protection available was not enough to stop competitors.
With the Patent Box, there is a new consideration. A cost of several thousand pounds for a patent might seem high, but the saving on corporation tax is potentially far greater. A patent can last for up to 20 years, and a saving on corporation tax over all or part of that period could easily repay the original costs.
To qualify for the Patent Box, your patent only needs to cover your own product. So, it is no longer essential to the value of the patent that it stops your competitors – you are still potentially missing a reduced rate of tax by not protecting your invention, even if it is only protected narrowly.
Of course, the traditional importance of patents remains. If you can protect your inventions and stop your competitors copying your ideas, an advantage in the marketplace can be gained.
What should I do now to see if the Patent Box is useful for me?
As a firm of patent attorneys, Mewburn Ellis can provide a wide range of services relating to the Patent Box, including:
- Portfolio review: what IP do you have? Does it cover your products?
- IP auditing: are you generating patentable ideas? Do you have the infrastructure in place to take best advantage of them?
- Filing and prosecution strategy: how can you make the most of your new or pending patent applications?
- Transactional services: we have a team of specialised IP lawyers who are able to handle the licensing and assignment of your IP portfolio so that it can be best utilised to take advantage of the available tax relief (in consultation with accountants).
Of course, we are not tax accountants, and there are many detailed calculations and decisions involved in making use of the Patent Box and we recommend that you consult accountants about this. If you need help finding an accountant with suitable expertise, please contact us. However, having a detailed knowledge of your IP and strong policies going forward will be a vital first step in those discussions.
Please do not hesitate to contact your usual Mewburn Ellis contact if you’d like more information about the services we can offer.
This information must not be taken as a definitive statement of law or practice.