Innovating companies need to shine up their patents to maximise tax relief
We want to ensure our innovative clients get in gear to cash in on a favourable tax regime being introduced for patented products.
The long-established Research & Development tax relief may be familiar to you, both that scheme and the new Patent Box relief should be given careful consideration.
The so-called Patent Box, first announced in 2010, allows companies to benefit from a 10 per cent corporation tax rate for profits linked to qualifying patents. The Government wants to encourage innovation and the growth of high-tech industries in the UK and has now released proposals for consultation, with the final legislation set to be introduced in autumn 2011.
The consultation comes as the Intellectual Property Office reports that its research highlights that innovative companies who protect their intellectual property - whether through patents, copyright or trade marks - are consistently attracting higher levels of investment.
The reduced corporation tax rate is designed to encourage businesses to develop and actively exploit patents, rather than sitting on intellectual property, as often happens. The new regime will be phased in over five years from April 2013, with tax savings gradually rising from 60% of potential benefits in year one, to the full 100% by year five. According to the current proposals, the new rate will apply to global profits derived from products patented in the UK or by the European Patent Office, but it has been left open as to whether other national patents may be included in future.
The system from 2013, will benefit both pre-existing and new patents, but is available only after a patent has been granted, with a back-dated claim of up to four years to the date of the patent application, being currently proposed. The Government is particularly keen to get feedback on whether the four year backdating proposal is fair and reasonable in asking business to look at their historic data. The 4 year period may be revised as it is well known that patents can take a significant amount of time to reach grant stage.
Companies that are able to claim the reduced rate include both the patent owner and exclusive patent licensees. If a patent is jointly owned, all collaborators will qualify if they can show a significant contribution.
While the tax break will apply to both licence income and patent income embedded in the sales proceeds of patented products, it does not seem likely that income from products made from a patented process will be included - with the possible exception of pharmaceuticals, which may prompt a review of strategy by some companies.
Harvey Ingram intellectual property specialist Pina McAleer says: "There is scope for companies with activities that would not currently attract tax relief to review their strategy. If it is possible to attribute activity to a patented product, instead of the process, then they could attract the reduced rate. Although, as with all things, everyone needs to weigh up the admin burden of opting in to such a scheme - but it could amount to a considerable tax saving.
"My advice would be to review any proposed applications, licenses or registrations to see whether or not your company is missing out. Speed is of the essence with new applications, as the door is opened to retrospective tax claims after the patent grant is awarded."
Unfortunately under the current proposals, there are no plans to include profits generated from copyright or trade marks in the new arrangements.
If you would like more information or advice on this or any intellectual property issue, please contact: