The Patent Box regime

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The Patent Box began in April 2013 as a government sponsored incentive regime designed to encourage companies to commercialise their intellectual property (IP) in the UK. It was set up to help companies make money from their patented innovations by reducing the amount of UK corporation tax that a company is liable for. Using the patent box can effectively help you to decrease your tax rate and lower the total overall corporation tax you should pay.

How can I benefit from the Patent Box regime?

If you own a UK company or overseas company with a UK branch and you pay UK corporation tax but your company develops its own products, then the patent box could be something you and your company can benefit from.

The Patent Box is set up to cut the tax rate down to 10% on profits relating to patents and other IP rights, which will then lower your company’s overall tax rate. In order for a company to take advantage of this reduction in tax, a company must choose to elect into the Patent Box regime.

How am I eligible?

If you own a UK company or overseas company with a UK branch, and you hold patents, IP rights or an exclusive licence over such rights, you may be able to use the patent box regime.

If your company is involved in research and development (R&D) and holds a qualifying IP, with profits that come from a feature that was patented before the UK Patent Office or European Patent Office then you would be entitled to this tax deduction against the UK taxable profits made on that product.

Furthermore, the profit can be from the sales made by your company or in the form of a royalty derived from a licensee. Your company does not even need to be the company that carried out the R&D as long as it was done by another company in the same group. However, your company must own or have exclusive rights (under UK or European patent licensing) to at least one feature of the product from which the profit has been made.

Additionally, profits from sales outside of the jurisdiction covered by the patent rights (UK and Europe) are still eligible for tax deduction. For example, if you sell a product outside of the UK and Europe, but it has the same features as the ones sold within the UK or Europe, the product would still be produced by the same patent right so you would still be eligible for the tax deduction on the profits made from that product.

Sounds great, can you help me?

If you need advice on any aspect of electing into the patent box regime or the benefits it could bring your company, or any other accounting queries, please get in touch, we’d be happy to talk to you about how to make the most of your business.

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