Posted: 20 / 06 / 2024

With the main rate of corporation tax increasing to 25% from 1 April 2023 and the effective Patent Box rate remaining at 10%, the tax benefit of the Patent Box scheme has increased by over 66%, with a 15% saving on Patent Box profits compared with 9% previously. This means the scheme is now even more beneficial than ever for companies with qualifying IP profits.

The Patent Box regime transitioned between 2016 and 2021, during which time significant changes were implemented. The complex transitional rules that were implemented may have discouraged companies from claiming, given the administrative burden. However, these rules ended and the new rules are mandatory for all companies, so now is a great time to consider an election.

Qualifying companies 

In order to qualify for the Patent Box regime these conditions need to be met…

Owning a qualifying IP right

You must own or hold exclusive licence in respect of a qualifying IP right, the following are considered a qualifying right:

  • Patents granted under the UK Patents Act 1977 by the UK Intellectual Property Office
  • Patents granted under the European Patent Convention by the European Patent Office
  • Patents issued by other specified EEA national authorities

Development condition

The development condition is in place to ensure that only companies that carry out development activities can benefit from the regime.

You or a group company, must have at any time been significantly involved in the creation of the patented invention. There is no statutory definition of what ‘significantly involved’ means but HMRC will consider factors such as time, effort and expenditure on development activities.

Active Ownership Condition (For companies in a group)

All or most of the qualifying IP right must meet either of the following conditions:

  • The company performs a significant amount of management activity in relation to the patents.
  • The company itself (Not another group company) must satisfy the development condition.

Essentially, the company that is claiming the relief has to either have management activity or have had development activity for the patents.

Next steps for qualifying companies

Under the Patent Box regime, a company is required to stream its Patent Box calculation on an IP right-by-right basis. Therefore, if you believe that the Patent Box regime may be beneficial to you, there are some easy steps to ensure you have the information you need should you decide to claim relief. This includes:

  • tracking your patent-related income and expenditure
  • maintaining an up-to-date list of patents (both pending and granted)
  • keeping track of any R&D spending related to your relevant IP

Each claim process is different, but we can guide you through an election into the regime to optimise the potential value.

If you own or exclusively license an IP right and have undertaken previous R&D activity in respect of that right, don’t miss out on this valuable opportunity that could bring a 10% effective tax rate on relevant patent profits.

Insights Event Cutting Corporation Tax with Patent Box

Need help using Patent Box to cut your corporation tax? Patent Box is tax relief designed to encourage companies to develop and commercialise intellectual property in the UK. It allows companies to apply a lower rate of Corporation Tax to profits earned from qualifying IP.

Join us in the Sedulo Liverpool Wilson Club and our guest speaker, Senior Associate and Patent Attorney at Forresters Jack Dean, for a morning of networking and learning how Patent Box could help you.

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Adam Corr
Corporate Tax Manager

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Sarah Richards
National Head of Tax

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Omar Majeed
Corporation Tax Manager

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Alex Keir
Corporation Tax Senior

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