Patent Box Tax Relief

Companies involved in patenting and who pay Corporation Tax may be able to obtain significant tax relief under plans unveiled by HM Revenue and Customs (HMRC) and incorporated in the Finance Act 2012 (Schedule 2). The legislation is part of the Government’s aim to encourage innovation in the UK and increase tax competitiveness.

The so-called “Patent Box” rules will enable companies to apply a lower rate of Corporation Tax to profits earned after 1st April 2013 where the profits are attributable to its patented inventions. Qualifying revenues include, for example, income on patented products, licence royalties, patent sales, and damages and settlements from infringement claims. Companies should be owners of patents and also be involved in development of the relevant inventions. In addition to patent owners, companies who do not own but hold licenses under patents owned by others may also be eligible. Special rules apply to groups of companies collectively involved in patenting and development.

Further details can be found on HMRC’s website.

The reduced rate will eventually be 10% but the relief is being phased in over a five year period, with 60% of the benefit being introduced in 2013, increasing year-on-year by 10% with the full relief being available from 2017.