From April 2013, qualifying companies will be able to take advantage of a new system of Corporation Tax relief on profits earned from their patents, as an incentive to develop innovative patented products.
George Osborne first outlined his plans for the Patent Box during Budget 2012. The new relief is being put in place to complement the existing Research & Development (R&D) tax relief rules. Qualifying companies will be able to benefit from both types of tax relief.
How do you work out the tax relief?
Corporation Tax relief on eligible income will be phased in from April 2013, and must be claimed via your company’s annual Corporation Tax Return. You apply an appropriate percentage (60% in the 2013/14 tax year, rising to 100% from April 2017) to the profits which have been derived from your patented inventions when working out your overall CT liability.
This section of the HMRC guide to the Patent Box describes how the calculation would work in practice.
Which patented income is eligible for tax relief?
You can benefit from the Patent Box if your company pays Corporation Tax, and you make profits from patented inventions which have been granted by the UK Intellectual Property Office (IPO), European Patent Office, or countries in the European Economic Area.
If your company licences out its inventions for other companies to develop, tax relief it still available, providing a number of conditions are met.
Not all of your company income has to be derived from intellectual property, but qualifying income must be derived from selling patented products, licencing out rights to develop your patents, selling patented rights, and any income related to IP infringement cases, or damages.
This article provides just a brief overview of the Patent Box. Full details, including full eligibility criteria and how group companies are treated can be found via the links below:
You can view a pre-recorded HMRC webinar on the Patent Box here. You need to provide basic registration details to view the video.