The “Patent Box” is an initiative by the UK Government aimed at increasing innovation by UK companies. Qualify for the Patent Box, and (generally speaking) the profits of the business that flow from its patented products are taxed at a lower rate.
As with any tax break, there are a number of hoops to jump through before you can qualify. Broadly speaking, these are:
- it needs to be “your” patent. This is not limited to patents whose registered proprietor is the exact company making the claim, fortunately. So long as there is a genuine relationship, such that the company making the claim is either licensed under the patent, or is part of the same group and is making a contribution towards the exploitation of the patent, then the company should qualify
- The intellectual property needs to be granted and in force. Only certain forms of IP qualify, patents are included (obviously) but trade marks are not. Despite the name, the Patent Box is not just for patents, however, as some other forms of IP do qualify. If a patent is relied on, though, it needs to be a granted UK national patent or a granted European patent.
- The profits need to be related to the IP in question. Products sold which are covered by the patent are an obvious example, in which case it is the worldwide profits generated by that product that qualify, even if the patent is only in force in the UK. Profits arising from licensing and sale of the IP can also qualify.
- There is a mechanism for allocating the relevant overheads within the company so that the IP-related profits are properly arrived at. A simple proportional allocation is possible for smaller companies, but larger companies need to put in place a division in their accounts so that they can audit the IP-related overheads. Smaller companies may do this if they wish, for example if the overheads mainly relate to the non-patented products whereas the patented products are relatively more profitable.
The provisions are a mix of IP and accounting provisions, and in our opinion a properly-founded claim will result from a joint effort by accountancy and IP advisors. Michael’s firm therefore offers a fixed-fee Patent Box certification service for accountants, others may be available.