Patent Box

What is the Patent Box tax regime?

In 2013 The UK Government introduced a scheme to reduce your corporation tax down to just 10% from the usual rate over a four year period. To be eligible your UK company, or global groups of companies with UK group members, need to make profit from goods and/or services that are patented or protected by other qualifying intellectual property rights (IPR).

What is a patent?

A patent protects new inventions and covers how things work, how they are used, what they are made of and how they are made. It gives the owner the right to prevent others from making, using, importing or selling the invention without permission for a period of 20 years. Your invention must be new, have an inventive step that is not obvious to someone with knowledge and experience in the field, and be capable of being made or used in some kind of industry.

What is the objective of the Patent Box?

It has been devised to reward innovative companies who own or exclusively license the qualifying IP rights. Its intention is to establish the UK as a location of choice for innovative industries, incentivising businesses to retain and commercialise patents and other IPRs in the UK.

What is qualifying IP?

Relief is available on profit generated by:

  • products and services covered by a patent
  • products that incorporate a patented component
  • use of a process which is covered by a patent
  • licensing revenue from your patents
  • sales of qualifying patents
  • infringement of your patents
  • corresponding acts in relation to other qualifying IPRs, such as Supplementary Protection Certificates for medical and plant protection products and protected regulatory data protection.

Who qualifies for the Patent Box?

Your business could be eligible for Patent Box tax relief if:

  • your company invests in R&D and has patents covering qualifying products
  • your business creates innovative products and services
  • you already have patents covering products that your business sells and makes profit from
  • your company obtains a patent on a component that makes a demonstrable improvement to the overall performance and function of an existing product
  • your company makes innovative products but has never before filed patents, but is interested in the tax benefits of doing so in future

Deciding whether to elect in to the system

Eligible companies have been able to elect to go into the Patent Box scheme since April 2013. The UK Government announced in late 2015, following a review of harmful tax practices in the OECD (base erosion and profit shifting, BEPS), that the system introduced in 2013 would be modified from June 2016 to the so-called ‘Modified Nexus Approach’. Entrants to the scheme up to June 2016 will benefit from the original scheme for a further five years, until 2021, when the old system is finally phased out. New entrants from July 2016, and all participants after June 2021 will benefit from the new system. The new system will still provide substantial tax savings on UK profits where value is created in the UK. So you need to assess now, with the help of both tax and IP advisors, whether your business meets the required criteria and whether there will be an overall benefit in doing so. Election into the Patent Box scheme does not automatically mean you will be entitled to reduced tax, but patents held from that date may be eligible for inclusion at the end of the accounting period when the tax computations are produced. The difference in eligibility between old and new schemes may impact the timing of election into the scheme.

How much does it cost to obtain a patent?

There are many variables involved in filing a patent application, including the type of technology involved, the level of detail provided during initial instructions and the worldwide jurisdictions you may wish to file for protection in. At present, there is no worldwide patent, so patent applications are filed on a country-by-country or regional basis, as required. For Patent Box purposes however, a patent in the UK is all that is needed to meet the eligibility criteria of HMRC. It costs from £3k to £6k for the initial UK filing of one patent application. The actual cost will vary from case to case depending upon the clarity of instructions provided to the patent attorney and complexity of the technology involved.

What should I do next?

If your business meets the criteria above, then you should speak to a patent attorney as soon as possible who can review your existing IP and consider your future IP strategy with you to assess your eligibility for electing into the Patent Box scheme.

You also need to speak to a tax adviser to look at the corporation tax implications of joining the Patent Box scheme, who can advise you on whether you should opt-in or not and when to do so, transfer pricing, the amount of your profits derived from your patented products or services likely to qualify.

Despite the complexities, one fact is clear – as a result of this regime, the potential value of a patent to your business has increased. Previously, the general perception was that patents only had intangible value, derived from the power to exclude competition. Now, with the Patent Box, a patent can have a direct and significant impact on your balance sheet. Certainly, the boost in profits that a well-defined and executed Patent Box strategy can provide could significantly outweigh the associated costs.

How can we help you?

Our Patent Box team has developed expertise in this area of IP strategy, so that we can offer effective and insightful commercially-minded advice to companies seeking to capitalise on the benefits of the UK Patent Box regime.

The complexities of the Patent Box mean that it has different implications for every enterprise. While we can provide targeted advice in relation to specific products or services, as election into the Patent Box applies to the entirety of a company it is generally advisable at an initial stage to assess its suitability in view of your business as a whole. In this respect, members of our team will work closely with your development, legal and finance teams to review your patent portfolio and understand your business lines to assess how the Patent Box could impact your company.

Following this assessment we can provide you with actions and recommendations tailored to your specific circumstances. You should be aware that your tax adviser/accountant may not be qualified to assess your patent portfolio or advise you in relation to your IP strategy, and it is therefore important to take appropriate advice from both sets of advisers at an early stage. If you need guidance on choice of tax advisor we have many contacts with whom we have worked.

Getting in touch

If you are interested in how you can use the Patent Box to your advantage, please get in touch with one of our Patent Box team to discuss your particular business situation. We can perform an initial review of the potential suitability of the Patent Box to enable you to decide on how best to move forwards.

Contact us by telephone on 020 7655 8500 or via email at gje@gje.com.

Sign up to our newsletter



Please sign me up for the newsletters of this industry*