In the latest instalment of our “A guide to” series, the Luvo team provides a complete overview of Patent Box relief in the UK, explaining what the relief is, who is eligible, and why making a claim is worthwhile.
What is Patent Box?
Patent Box is a generous but underclaimed Corporation Tax relief that allows companies to apply a lower rate of Corporation Tax to profits earned from its patented inventions. It can be claimed alongside R&D Tax Credits, providing certain qualifying criteria is met.
For those eligible, all profits generated from qualifying patents are taxed at a reduced rate of 10% (rather than the usual 19%) – making Patent Box relief a very generous scheme.
Introduced in the UK in 2013, the chief aim of Patent Box relief is to incentivise UK companies to retain and commercialise existing patents and to develop new, innovative, patented products and processes. The rules regarding how to submit a claim were amended in July 2016, and these slightly more complex rules are the ones that businesses are now required to follow.
Eligibility: who can make a Patent Box claim?
If you have a patent, or have a patent pending, you could be eligible to claim through Patent Box. You must hold and be able to provide evidence of, a UK and/or certain European patents; those granted in France, Spain, Italy, USA and Japan are excluded from the scheme.
You can use Patent Box if your company:
• is liable to Corporation Tax
• makes a profit from exploiting patented inventions
• owns or has exclusively licenced-in the patents, or
• has undertaken qualifying development on the patents.
Numerous businesses put patents in place in order to protect their inventions, but a surprisingly large proportion of these are yet to claim Patent Box. This could be for a number of reasons:
• because many businesses are not aware of the relief
• because they think that making a claim will be too complicated
• because the patent hasn’t yet been granted (and is still pending)
• or perhaps because they believe that the scheme will not apply to them.
If you are unsure if your business is eligible, please get in touch with the team at Luvo and we’ll be able to provide further, personalised guidance.
Why should I make a claim?
The principal reason to make a Patent Box claim is simply that it will save you money. Patent Box taxes the profits generated from qualifying patents at a preferential rate of 10% – a significant tax saving when compared to the current rate of corporation tax payable of 19%.
Patent Box is available for every year in which a business holds the patent and generates income from qualifying intellectual property. A UK patent typically lasts for 20 years from the application filing date, meaning the total amount claimed from the relief can add up over the years and be extremely valuable.
Anyone who has applied for a patent will know that it isn’t cheap. Pulling together an application can take time, you may require the involvement of a patent lawyer and it often takes several years for a patent to be granted. If you have gone through this process, it is certainly in your best interests to reap all the rewards that being patent-protected has to offer.
How to claim Patent Box relief?
Claims are made by submitting a CT600 Tax Return. This can be amended or resubmitted for up to two years after an accounting period end.
As previously explained, the calculation of this relief has become more complex since the 2016 rule changes, so it is worth seeking professional help to ensure you get your claim submission right.
Calculating the relief requires overall sales and profitability to be streamed, separating the sales and estimated profitability that arise from each patent from the sales and profits from non-patented products. A Patent Box professional, like Luvo, will carry out a prescriptive multi-step calculation to determine the amount that is available for Patent Box relief.
The Luvo approach: how we can help
Unlike many R&D Tax Credits specialists, the experienced team at Luvo also supports Patent Box claims – with a 100% claims success record.
The Luvo approach for progressing Patent Box claims is always to identify if relevant patents are in place, to clarify what these are and when these were established, and to estimate what proportion of overall turnover these account for. This allows us to quantify what the likely tax saving is from claiming. Our tried and tested approach helps us determine right from the start whether a claim would be worthwhile for you.
Luvo works on a contingent basis; we only support claims where there is eligibility. Our time is solely dedicated to R&D Tax Credits and Patent Box claims (we don’t do anything else!), so you can rest assured that you are receiving dedicated, specialist advice from true experts in the field.
Using our expertise, we are happy to talk to you or your Accountant about Patent Box, including clarifying if you are eligible to claim. We don’t look to charge for this and are willing to do so on a no commitment basis.