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Patent Box & Research and Development

As many of our clients are the leaders in their field we would like to touch upon new legislation relating to Patent Box and research and development. The new legislation is yet to be tested and few people are aware of the potential benefits this legislation will bring to UK companies.

The Patent Box scheme came into force in April 2013. The scheme allows Limited Companies to apply a lower rate of Corporation Tax to profits earned from its patents after this date. The relief will be phased in over a four year period from April 2013, eventually producing a lower rate of Corporation Tax applying to these profits of 10% from April 2017.


Who can benefit from the Patent Box?

You can only benefit from the Patent Box if your company is liable to Corporation Tax and makes a profit from exploiting patented inventions. Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.


Which patents are eligible?

You can benefit from the Patent Box if your company owns or exclusively licenses-in patents granted by the UK Intellectual Property Office or the European Patent Office.  Your company or another group company must also have undertaken qualifying development for the patent by making a significant contribution to either the creation or development of the patented invention or a product incorporating the patented invention.

The relief is also extended to include companies holding certain other medicinal or botanic innovation rights. This applies to Companies granted marketing authorization, for example medicinal products for human use under Regulation (EC) 726/2004 or Directive 2001/83/EC and who benefit from marketing protection by virtue of Article 14.11 of Regulation (EC) 726/2004 and Article 10.1 of Directive 2001/83/EC respectively. HMRC’s internal guidance CIRD210170 explains this in further detail and we would need to discuss this with our legal advisers if this is something that your business is developing.


Types of Income

To be relevant IP income, it must come from at least one of the following:

  • selling patented products - that is sales of the patented product or products incorporating the patented invention or bespoke spare parts
  • licensing out patent rights
  • selling patented rights
  • infringement income
  • damages, insurance or other compensation related to patent rights

Your company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool.

If you have a project that you feel your company could benefit from then please do not hesitate to contact us.


Research & Development relief

Unlike Patent Box, this relief applies to self employed and other forms of businesses. There are two schemes, one for small or medium sized business and one for large businesses. The large companies have 500 employees or €100 million turnover therefore we will only comment upon the small to medium sized scheme. The tax relief for small or medium companies on allowable R&D costs is 225 per cent, i.e. for each £100 of qualifying costs, your company could reduced its taxable profit by an additional £125 on top of the £100 spent. This relief has been available to small and medium sized businesses since 1 April 2012

Your company or organization can only claim for R&D Relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty, it cannot simply advance the businesses own state of knowledge or capability, i.e. it must be a true advance for the specific field you are working in.


Amount of relief

Tax relief was only available if your business spent at a rate of at least £10,000 a year on qualifying R&D costs in an accounting period but this limit is removed for accounting periods ending on or after 1 April 2012. . There's an upper limit of €7.5 million on the total amount of aid you can receive on any one R&D project.

Once again this relief is too complex to discuss in detail and we would ask you to contact us for further information if this is something that you are considering undertaking in the near future.