Update on the “Patent Box” tax reduction

A potentially very valuable corporation tax reduction mechanism is being finalised by the UK government.  This is called the “Patent Box” and will come into effect in April 2013.

The benefit of the Patent Box is potentially significant. Broadly speaking, the profit generated from a product or process which includes a patented feature or component will be separated from other profit, and subject to a reduced corporation tax rate of only 10%.

To claim this tax reduction, you are required to have a granted UK or European patent covering at least part of the product in question.  Importantly, the patent may be directed only to one particular part of the product; it need not be directed to the product as a whole.

Although the tax benefit can only be claimed once a UK or European patent is granted, it can be backdated to the date of publication of the patent application.

Both the UK and European patent systems allow for significant acceleration of the patent grant process, provided certain requirements are met.  In the UK in particular it can be possible to obtain a granted patent in about one year, provided there are some commercial reasons that can be put forward to the UK Intellectual Property Office.  Likewise in the UK, the so called “Green Channel” is available to accelerate grant of patents directed to environmentally beneficial technology, a term that has been interpreted very broadly so far.  It should therefore be possible to take advantage of the Patent Box tax benefit relatively quickly, perhaps even by obtaining a granted patent by April 2013.

Now would therefore be the ideal time to review your current and potential product portfolio and your R&D plans, to try to identify what might already be patented, and what could be patented in the near future.  Are there potential developments, modifications or improvements to existing products that could be the subject of a new patent application, for example?  Is it worth beginning or finishing some R&D work to try to develop some patentable technology that could benefit from this tax reduction?  It is likely that in many cases it will be worth having a patent for the sole reason of reducing your corporation tax on the associated profits.

We recommend considering this potentially valuable new benefit as soon as possible to determine how this new tax scheme could impact your business, and to build the scheme into your business plan over the coming years.

We are able to provide more detailed advice on the Patent Box as well as being able to provide the appropriate information from HMRC which explains in more detail how the benefit is to be calculated.