The Patent Box system offers a significant opportunity for innovative businesses to reduce their corporation tax liabilities.
Designed to encourage investment in research and development (R&D) and innovation, the Patent Box allows eligible companies to apply a lower tax rate to profits derived from patented inventions.
Introduced in the UK in 2013, the Patent Box provides a reduced corporation tax rate of 10% on qualifying profits, compared to the standard rate of 25% (as of 2023). This substantial tax saving can free up resources for businesses to reinvest in innovation and growth.
To qualify for the Patent Box, businesses must own or exclusively license patents granted by certain authorities such as the UK Intellectual Property Office or the European Patent Office. Additionally, companies must demonstrate active involvement in the development of the innovation lying behind the patented IP.
Statistics from HM Revenue and Customs (HMRC) released towards the end of last year indicated that during the tax year 2022 to 2023 around 1600 companies elected into the Patent box, slightly lower than during the previous tax year. The total value of relief claimed rose slightly to an estimated £1469 million, with this figure primarily being driven by large companies claiming most (94%) of the relief. The area of the UK with the fewest number of companies claiming this relief is estimated to have been the North East, with only 2% of the companies claiming relief during the tax year 2022-2023 being based here.
For corporation tax payers, a patent filing strategy should consider the potential for tax savings, and the specific requirements of the Patent Box, alongside the broader strategic objectives of protecting and exploiting the business’s innovations.
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