The Patent Box 


The old Patent Box closed on the 30th June 2016, but has now been replaced with a new, albeit somewhat less generous, Patent Box, as of the 1st July.  So, if you are considering using the Patent Box to lower your Corporation Tax on World-wide profits attributed to existing and new Patents (or other qualifying IP), now is the right time to find out about the changes.  Please note that Trade Marks and Registered Designs are not qualifying IP.


Not all inventions are capable of being granted Patent protection - please follow this link if your would like to know more about what kind of inventions are barred from Patent protection in the UK.


Please note the following which provides some background information on the Patent Box.  The old Patent Box regime ended at the end of June this year.  However, for those who did elect into the old Patent Box before the 30th June 2016, the corporation tax savings go on until the end of June 2021.


By way of a recap, the Patent Box started on the 1st April 2013 and provides corporation tax relief to World-wide profits attributed to existing and new Patents (or other qualifying IP).  The amount of the relief increases in increments each financial year, with the top-level of relief being provided from the 2017/2018 tax year, at which time the rate of corporation tax will be 10%.


The new Patent Box is not less generous with respect to the notional levels of corporation tax which will be payable - still 10% by the 2017 / 2018 tax year.  However, the rules on qualifying expenditure have been tightened and tax incentives will be offered only where significant R&D is undertaken in the UK.  Money spent on outsourced R&D or on acquiring technology can count towards the R&D total, subject to a cap of 30% of actual R&D expenditure, but the biggest rewards are for those companies which have substantial economic activities in the UK. 


Remember, one can elect into the Patent Box whilst your qualifying Patent Application is pending.  The election date starts the date of relief (although this can be back-dated, but not normally by more than a year following the filing of the relevant tax return), even though the relief is only formally applied after the Patent is granted.  However, there can be financial reasons why you might not wish to make the election prior to grant of the Patent, and the timing of the election is important and must be considered and discussed with your Accountants.  Are you maximising the relief your company should be receiving?


If you are looking into the Patent Box, you should also be claiming or considering claiming R&D Tax Relief! 


Some further details are available on HMRC’s websites - https://www.gov.uk/guidance/corporation-tax-the-patent-box and https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief.


July 2016 © Burrows Chambers Associates

                                           R&D Relief


This is not a new scheme but, if one has elected into the Patent Box or is even considering it prior to close of the present regime to new applicants at the end of June this year, this is a good time to check that you are also claiming for R&D Tax Relief.  

 

To qualify, a company’s R&D project must seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of a scientific or technical uncertainty – and not simply an advance in the company’s knowledge or capability.  The project must also be related to your company’s trade – either an existing one or one you intend to start through conducting the R&D (as the law stands since 2009).  If claiming though the SME scheme (further details below), the company must own any resulting IP.

 

The types of costs that can qualify for R&D Relief are, for example: employee costs; staff providers; materials; utilities; software; some subcontracted R&D expenditure; and some capital expenditure.

 

There are two relief schemes, one for SMEs and one for large companies – the amount of relief available depends upon the size of your company.  Presently, SMEs are considered to have less than 500 employees and an annual turnover not exceeding €100m or a balance sheet not exceeding €86m, and the SME Scheme, at present, provides relief of 230% (as of the 1st April 2015, but previously 225%) of the R&D expenditure.  Alternatively, an SME can swap its future tax relief for R&D Credits payable to you by HMRC; however, the amount of Tax Credits are not a direct financial equivalent of the relief which could have been claimed.  If an SME and a sub-contractor, you will likely not be able to claim under the SME Scheme, but you may still be able to claim under the Large Company Scheme which, conversely, only provides relief of 130% of the R&D expenditure.  

 

Whether or not your company qualifies for R&D Relief, or whether Tax Credits will be of assistance to your company instead, is a matter which must be considered with your Accountants.  Are you maximising the relief your company should be receiving?

 

February 2016 © Burrows Chambers Associates


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