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BlogSpot: 'Patent Box' - How companies can benefit
Richard Hall ACCA, Corporate Services Director. Richard heads up Moore and Smalley's digital and creative team. He looks after a portfolio of clients running businesses in the digital and creative sector, many of which are based in the Lancaster area. He has many years' experience of working with small and medium sized businesses: his clients appreciate his "hands on" approach to planning for business success and helping them through periods of change. Richard's passion for creative industries extends beyond his working life, and out of hours he devotes time to his role as Director of The Dukes Theatre in Lancaster.
'Patent Box' is the government's name for the new system of charging lower rates of tax on patent-related profits. Richard Hall from Moore and Smalley gives a helpful overview.
Patent Box is full of pleasant surprises
Businesses can take advantage of a generous tax break on profits from patented products and processes.
Companies paying corporation tax are eligible for Patent Box relief, but not individuals, partnerships or LLPs.
Patent Box applies to patents granted in the UK and Europe, including those granted before the introduction of Patent Box in April 2013.
However, the new scheme does not cover other forms of intellectual property (IP), such as trademarks and copyrights.
Timetable for lower tax rates on patent-related income
The Patent Box system will involve qualifying businesses paying corporation tax on profits from patents at a rate of 15.2 per cent in 2013/2014, reducing to 10 per cent by 2017/18, compared to the current main rate of corporation tax of 24 per cent.
What qualifies and what doesn't
To qualify a company must own or licence in a patent and have made a significant contribution to an item protected by the patent, or a product incorporating the item.
Income eligible for lower rates
Types of income that will qualify for Patent Box include revenue from the sale of the patented item, or of a product incorporating it. This also extends to spare parts (regardless of whether the spare part is patented) that are incorporated into a patented item.
For example, suppose a company manufactures a printer, and has a patent on the printer cartridge. Sales of the printer will qualify for patent box as well as sales of the cartridge as a spare part.
Patent Box will also apply where a product does not incorporate a patented item, but the company has developed and patented the equipment used to manufacture that product. However, it does not apply to companies selling services rather than goods.
Licence fees and royalties, along with profits from the sale or disposal of the patent will also attract Patent Box relief, as will income received from third parties accused of infringing the patent.
How are Patent Box profits calculated?
The lower rate of corporation tax applies to profits from patents, and there are detailed computational rules to arrive at that profit.
To enable Patent Box relief to be claimed, your accounting systems will need to be able to pick up the relevant income and in some cases, to identify relevant expenses. Patent Box will be introduced in April 2013, so any system changes need to be in place by then.
Is Patent Box likely to help your company? Please comment below.
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Thu 31 May 2012
