Patent box ― overview

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Patent box ― overview
  • Qualifying companies
  • Calculation of patent box profits

The aim of the patent box regime is to provide an incentive for companies to develop and retain patents and other qualifying intellectual property within the UK as part of the government’s growth agenda. The regime allows qualifying companies (see below) to elect for profits from the sale of products or services and from the use of processes which have at least one patented component, and relevant royalties, to be taxed at a favourable rate, which is 10% from 2017 .

This reduced rate was phased in over a number of years (from the introduction of the regime as follows):

  • FY 2013 ― 60% of relevant profits were taxed at 10%
  • FY 2014 ― 70% of relevant profits were taxed at 10%
  • FY 2015 ― 80% of relevant profits were taxed at 10%
  • FY 2016 ― 90% of relevant profits were taxed at 10%
  • FY 2017 ― 100% of relevant profits were taxed at 10%

The regime has some complexities and requires a company to be able to keep separate track of appropriate expenditure by patent and by product and of the profits generated from this. From 1 July 2016, this includes being able to track R&D expenditure over a number of years. However, the tax savings from a patent box election may be long lasting (up to 20 years, the life of the patent). As such, the election may be more beneficial, and may be claimed in addition to, relief for R&D expenditure given as incurred.

Any election into this regime must be made in writing, specifying the first accounting period to which the rules will apply and must be made within 12 months of the fixed filing date of the return for the first accounting period for which the company

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