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 – all profits generated from qualifying patents are taxed at a reduced rate of 10%, rather than the usual 19%.
Introduced in the UK in 2013, the chief aim of Patent Box relief is to incentivise UK companies to retain and commercialise existing patents in the UK, and to develop new, innovative, patented products and processes.
Companies must elect into the Patent Box to apply the lower rate of Corporation Tax, which is currently 10%. This relief was introduced in phases from 2013 up until 2017.
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.
Patent Box can be claimed alongside R&D Tax Credits, providing certain qualifying criteria is met.
If your business has a patent, or has a patent pending, you could be eligible to claim through Patent Box. Specifically, a company can use the Patent Box if it:
- is liable to Corporation Tax
- makes a profit from exploiting patented inventions
- owns or has exclusively licenced-in the patents by:
- the UK Intellectual Property Office
- the European Patent Office
- or, has undertaken qualifying development on the patents.
To benefit, the company 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.
The principal reason to make a Patent Box claim is simply that it will save your business money.
Patent Box currently 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%. For more information on how Patent Box can reduce your Corporation Tax, read our latest article published in The Gazette.
Patent Box is available for every year in which a business holds the patent and generates income from qualifying intellectual property (IP). 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 financially valuable.
Anyone who has applied for a patent will know that it isn’t cheap. Pulling together an application can take time, may require the involvement of a patent lawyer and 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
Claims for Patent Box relief are made by submitting a CT600 Tax Return, and including the details of the claim within or appended to it. This return can be amended or resubmitted for up to two years after an accounting period end.
The calculation of this relief has become more complex since the 2016 rule changes.
Nowadays, 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 will carry out a prescriptive multi-step calculation to determine the amount that is available for Patent Box relief.
Get in touch
As a specialist adviser in Patent Box, Luvo Financial’s team of experts efficiently and effectively create Patent Box claims for its clients. Do you need help with an R&D tax claim? Pop your details in the form below and one of our R&D specialists at Luvo Financial will be in touch to see if we can help you.