The Patent Box

What is the Patent Box?

The R & D Tax Relief Patent Box scheme is an HM Revenue & Customs (HMRC) incentive, offering companies to apply a lower rate of Corporation Tax to profits earned after 1st April 2013 from patented inventions.

The UK Patent Box assists companies who perform Research and Development enjoy a lower rate of corporation tax upon income linked to IP registrations within the UK or EEA.

From April 1st 2013, the Government has issued draft legislation  to effect proposed changes to the UK patent box regime. The aim is to bring UK rules into line with the new OECD requirements and address potential tax avoidance issues.

The changes are complex and have a number of trigger dates. Companies intending to use or continue to use the Patent Box must establish a clear link to the performance of RD and the registration of linked IP.

It changes enable companies to apply a lower rate of Corporation Tax of just 10% to profits earned after Apr 1st 2013 from their patented inventions and certain other innovations.

How To Make A Claim For R & D Patent Box Tax Relief

Election to the scheme must be made in writing within 2 years after the end of the accounting period in which the relevant profits and income arose.

The reduced 10% rate is calculated by subtracting an additional trading deduction from corporation tax profits.

The actual formula for corporation tax rate (CTR) is calculated as below

RP x FY% x ((MR – IPR)) / MR

KEY:

• RP – profits of a company’s trade relevant to Patent Box
• FY% – appropriate % for each financial year
• MR – main rate of Corporation Tax
• IPR – reduced rate of 10 %

The appropriate % to the profits of the company’s earnings from its patented inventions will need to be applied as follows.

1st Apr 2013 – 31st Mar 2014
60%

1st Apr 2014 – 31st Mar 2015
70%

1st Apr 2015 – 31st Mar 2016
80%

1st Apr 2016 – 31st Mar 2017
90%

From Apr 2017
100%

The Government website contains detailed statistical reports and can be found by clicking here. These statistics provide information on the numbers, values and costs to the Exchequer of Patent Box Tax Reliefs.