In through the outfield blog

24 January 2013

The Patent Box: tax breaks for UK innovation

From the 1 April 2013 UK companies will be able to claim a corporation tax break on profits from patents in what is called the “Patent Box” scheme. HM Revenue and Customs have a page explaining how it works. 

Here is my summary of the main provisions. It is vital that anyone interested reads the full details to check if they are eligible.

The companies must either own the patents or have exclusive licenses for their use; must have worked on their development (or a related company must have done so); and must be making a profit from the patents.

The relief will be phased in over several years to achieve a tax rate of 10% on profits from patents. At present UK corporation tax is 24%, coming down to 23% this year. The details are quite complicated, with the following formula and notes being quoted in the website:

RP × FY% × ((MR - IPR) ÷ MR)

In the formula:

•RP is the profits of a company's trade relevant to Patent Box

•FY% is the appropriate percentage for each financial year

•MR is the main rate of Corporation Tax

•IPR is the reduced rate of 10 per cent

A couple of examples are given on the website of how it might work out.

The article The new Patent Box regime and corporate tax reform in the UK, published in International Tax Journal, September-October 2012, pages 51-58, gives many details and suggests that pharmaceutical and biotech companies in particular would find the scheme attractive (as so much of the value in their products depends on patents). I found it in the database Business Source Complete, which we subscribe to for the use of our readers in the Business & IP Centre.

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