An Overview of Patent Box Tax Relief

Intro

We will often be considering similar Companies to those that have, or are able to make, R&D claims. The two reliefs often come hand in hand.

However, for Patent Box Tax Relief, the key difference is that we are interested in ‘patented’ products (or products incorporating them).

There is no requirement for a patent for R&D tax reliefs.

Overview

The Patent Box was introduced much more recently than R&D relief. It came in to effect from 1 April 2013.

The relief provides an optional 10% CT rate on income from profits derived from qualifying Intellectual Property (“IP”) derived from patented products.

The Patent Box only applies to Companies.

There is no cap on company size.

Significant changes to the regime were introduced as a result of the OECD’s Base Erosion & Profit Shifting (“BEPS”).

This effectively created two regimes with transitional rules which perhaps make Patent Box more difficult than R&D relief claims. However, the old regime will fall away completely from July 2021. So that might be helpful!

Facts and figures

It is estimated that, for 2017/18, around £1.125bn was claimed through Patent Box.

This is much less that R&D, but not small fry by any means.

On a value basis, it is mainly claimed by large companies, with almost 1bn of the above figure being claimed by large companies.

However, by claim number, those made by small and medium companies are significantly more that those made by large companies.

Election

The Patent Box is an optional regime and the Company must elect in to the regime. The election must be made in writing to HMRC.

It is necessary to make the election within 2 years of the relevant accounting period.

This election will generally be made in:

• the tax return; or
• in an amended return

The election applies to all trades of the company – so one cannot pick and choose on what business streams one is elected in to patent box.

That said, one group company can elect, with the other group companies not doing so.

An election may be revoked. However, if you do revoke the election then you will be banished from making any further Patent Box claims for 5 years.

If you have any queries about Patent Box Tax Relief or tax matters in general then please get in touch