What is the Patent Box?

The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions. The relief is being phased in with the full 10% of Corporation Tax available from 1 April 2017. You will need to apply an appropriate percentage to the profits your company earns from its patented inventions.

The appropriate percentages for each financial year are:

• 1 April 2013 to 31 March 2014: 60%

• 1 April 2014 to 31 March 2015: 70%

• 1 April 2015 to 31 March 2016: 80%

• 1 April 2016 to 31 March 2017: 90%

• From 1 April 2017: 100% of patented profits

Remember companies can amend the tax returns as long as the accounting period is within 2 years (i.e. year ended 30 April 2013: an amended return needs to be submitted by 30 April 2015).

Who can benefit from the Patent Box Regime?

You can only benefit from the Patent Box if your company is liable to Corporation Tax and makes a profit from exploiting patented inventions. Your company must also own or exclusively licence-in the patents and must have undertaken qualifying development on them. The patents must have been granted by the UK Intellectual Property Office or the European Patent Office plus the countries in the European Economic Area (i.e. such as Denmark and Germany).

In order to qualify for the regime the company must have undertaken qualifying development for the patent by making a significant contribution to either:

• The creation or development of the patented invention

• A product incorporating the patented invention

Patent holders may wish to licence their inventions for others to develop. If your company holds licences to use others technology it may still be able to benefit from the Patent Box. But to do so it must meet all of the following conditions. It must have:

• Rights to develop, exploit and defend rights in the patented invention

• One or more rights to the exclusion of all other persons (including the licensor)

• Exclusivity throughout at least an entire national territory – rights to manufacture or sell within part of a country, for example, would not qualify as being exclusive or exclusivity.

Also the licensee must either be able to bring infringement proceedings to defend its rights or be entitled to most of the damages awarded in successful proceedings relating to its rights.

Not all of your company profits may come from exploiting patented inventions. To be relevant intellectual property (“IP”) income, it must come from at least one of the following:

• Selling patented products – that is sales of the patented product or products incorporating the patented invention or bespoke spare parts.

• Licensing out patented rights

• Selling patented rights

• Infringement income

• Damages, insurance or other compensation related to patent rights

Your company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool.

How and when do you make a claim for the Patent Box?

You have to make an election to benefit from the reduced rate of Corporation Tax that applies to the Patent Box. You can do this in the computations accompanying your Company Tax Return or separately in writing. There is no special form of words for this election. You must make your election within 2 years after the end of the accounting period in which the relevant profits and income arose.

A special calculation is required to the tax computation because there is no box on the company tax return for making the election. Instead the reduced rate is subtracted as a additional trading deduction from your company profits.