As businesses strive to gain a competitive edge in today’s rapidly evolving marketplace, innovation has become an essential driver of success. Intellectual property (IP) assets, such as patents, hold significant value, fuelling the need for favourable tax incentives that reward companies for their innovative efforts. One such incentive that has gained substantial attention is the “Patent Box.”
By Phil Kinzett-Evans
Understanding the Patent Box:
The Patent Box is a government-backed initiative designed to encourage innovation and economic growth by providing favourable tax treatment on profits derived from patented inventions. This scheme allows businesses to apply a reduced rate of corporate tax to income generated from qualifying intellectual property (as low as 10% charge to tax on qualifying profits). By implementing a lower tax rate, governments aim to incentivise companies to develop and commercialise their patented technologies, ultimately stimulating economic activity.
Benefits of the Patent Box:
The main benefits for the Company and the wider economy generally, of the Patent Box scheme are:
Reduced Tax Liabilities: Businesses enjoy a reduced rate of corporation tax on income generated from patented inventions. This reduction in tax liabilities can significantly enhance a company’s bottom line and provide a competitive advantage.
Encourages Innovation and R&D: By offering favourable tax incentives, the Patent Box encourages businesses to invest in research and development (R&D) activities. This, in turn, drives innovation, fosters technological advancements, and enhances a company’s ability to develop new products or improve existing ones. Speak to us about the benefits of a Company carrying on R&D activities in respect of corporation taxes and also in a Company’s early stages where it is seeking to raise finance through seed and subsequent funding rounds (SEIS/EIS and KIC status).
Attracts Overseas Investment: Countries that offer a Patent Box regime can become more attractive for foreign direct investment (FDI). International companies seeking to protect and exploit their intellectual property assets may choose to establish operations in countries with favourable tax incentives, boosting the local economy and creating job opportunities. A Company that has developed IP that is capable of being exploited in a profitable way will therefore be more attractive to an overseas investor and perhaps ultimately an exit for the current owners.
While the specific requirements for the Patent Box may vary from one jurisdiction to another, certain common criteria determine eligibility. In the UK, businesses must demonstrate the following to benefit from the scheme:
- Limited company and subject to corporation tax
- Hold a UK patent
- Make profits from the exploitation of that UK patent
Strategic Considerations for Businesses
Who do I choose to help with Patent Box?
The Company’s accountants should play a crucial role in helping businesses identify and manage their patent portfolios effectively. They can collaborate with business owners and their teams to evaluate the eligibility of patents for the Patent Box scheme, ensuring optimal utilisation of the tax incentives available.
Alongside this, the availability of R&D Tax Relief should be considered. Businesses that benefit from the Patent Box often engage in significant R&D activities and should therefore be seeking to maximise their overall tax position.
It is vital for any international business outlook to make transfer pricing considerations when utilising the Patent Box. Our transfer pricing specialists can help structure intercompany transactions in compliance with transfer pricing rules to avoid potential challenges from tax authorities.
Our advisers will play a critical role in ensuring that your business meets the compliance requirements associated with the Patent Box scheme. This includes accurately tracking and documenting income, expenses, and activities related to qualifying IP assets, as well as preparing comprehensive reports for tax authorities.
The Patent Box represents a powerful incentive for businesses to harness the value of their intellectual property assets. From reduced tax liabilities to fostering innovation, this scheme offers numerous benefits.
UHY Ross Brooke plays a pivotal role in guiding businesses through the intricacies of the Patent Box scheme, helping them leverage its advantages while maintaining compliance.
By strategically navigating the Patent Box, you company can fuel growth, gain a competitive edge, and contribute to the broader landscape of innovation.
Get a FREE review of your R&D process and a copy of the UHY Research & Development Tax Relief Guide
Companies applying for R&D tax credits need to follow the rules carefully in order to maximise their tax relief. New changes to the R&D tax credit scheme come into force from 1st April 2023 aimed at reducing incorrect or fraudulent claims, improving compliance and encouraging UK innovation.
UHY Ross Brooke is delighted to offer a complimentary review of your research and development tax credit process with one of our R&D tax credit specialists. Please fill in the form below for your free review and Tax Relief Guide.