Patent Box: tax relief for patent owners and patent licensees

About the authors

David Walsh is a partner at Appleyard Lees IP LLP. He is a UK and European Patent Attorney specialising in the fields of polymers, pharmaceuticals, catalysis, process technology, sealing technology and industrial biotechnology. David has a PhD in surface chemistry from UCL.

Richard Bray is a partner and patent attorney. Richard works with a very wide range of clients, from innovative universities, start-ups and spin-outs, through to globally-known household names in the fields of electronic consumer goods, defence, commerce, and foods products.

David Jasiewicz is a trainee patent attorney and he works with clients including large and small chemical manufacturers, universities, and start-ups. David has a particular interest in the field of novel materials, coatings, and pharmaceuticals.

 

Patent Box: tax relief for patent owners and patent licensees

 

As provided in the recent UK budget announcement, the UK corporation tax rate is set to rise from 19 to 25 percent from 1 April 2023. As a result, companies should now be thinking about whether they can make use of the tax relief provided by the Patent Box scheme.

From 1 April 2023, a corporation tax rate of 25 percent will be payable on profits over £250,000, while the previous rate of 19 percent will continue to apply to companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will have to pay tax on a sliding scale between 19 and 25 percent.

For organisations that undertake R & D there is now a greater incentive to utilise the Patent Box scheme. The scheme is a form of tax relief that allows companies to apply a corporation tax rate of 10 percent to profits earned from its patented inventions, a rate that is considerably lower than the current flat rate of 19 percent. (The announced increase in corporation tax does not seem to affect the Patent Box rate.) The significant tax savings already available through this scheme will be worth even more when corporation tax rates rise.

The Patent Box scheme is subject to several requirements:

  • Profits must come from an invention that is covered by a patent granted by the UK Intellectual Property Office, the European Patent Office, or certain EEA countries
  • The applying company must own or be exclusively licensed to exploit the patent
  • The applying company must have contributed significantly to the creation or development of the patented invention
 

A company must elect to apply for Patent Box tax relief within two years following the end of the accounting period in which the relevant profits were earned. It is worth reviewing your organisation’s patent portfolio and current innovations now, to assess:

  • Where, and whether, tax savings can be made
  • Whether rising corporation tax rates could affect patent filing and prosecution strategy for the UK by taking advantage of the Patent Box Scheme
  • To identify issues that should be discussed with tax advisers
 

It is possible to elect into Patent Box for profits earned before a patent is granted, but the tax reduction cannot be claimed before grant. Since the application process leading to a granted patent can sometimes take several years, your organisation should consider applying for a patent for any current innovations soon. This will put the organisation in a better position to make full use of the Patent Box scheme when new corporation tax rates take effect in April 2023.

Please get in touch with us if you would like to discuss whether your organisation could make use of the Patent Box scheme.

In addition, if now or before 2023, you need to accelerate the prosecution of any of your patent applications to obtain quicker grant, we can advise on suitable strategies.

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