The Patent Box Tax Regime Could Improve Business Profitability, says accountants Cowgill Holloway

Tax advisers at Cowgill Holloway are urging companies to act now before Patent Box rules come into place from 1 April 2013. The Patent Box Regime will give a lower tax rate for profits earned by UK companies from patented inventions. It will bring advantages to businesses of all sizes and will be phased in over a four year period, leading to a tax rate of ten per cent by 1 April 2017.

The legislation is expected to encourage UK businesses to invest in research and development and use patents to further their commercial interests.

Andy Ball, Tax Partner at Cowgill Holloway LLP says: “Patent Box is a fantastic opportunity and companies should obtain advice from their tax advisers and patent attorneys to help define their strategy. Most importantly they need to act now to ensure they maximise returns.”

The regime will not just apply to patent royalties and similar license revenues, but also to the sales of complex manufactured products including just one patented component.  Worldwide income that gets taxed in the UK will be covered by the scheme. Both existing and new patents will be included and Intellectual Property must be registered in the UK or Europe to qualify.

The legislation puts in place a framework explaining how businesses can calculate the proportion of profits that are attributable to qualifying intellectual property.  However, Cowgill Holloway is warning that maximising the opportunity to invest in R&D and benefit from the new regime is not going to be straightforward. Most significant amongst a number of key issues to be tackled are patent ownership requirements.

Andy explains: “Many companies are expected to seek to secure patents on innovations where they perhaps previously may not have bothered.  This could lead to backlogs at the Patent Office.  A company cannot get tax relief whilst the patent is pending but back relief will be available after it is granted, so the sooner the application is made the better.

“There is a structured approach to the calculation of the claim and this will mean that it is important companies identify streams of income that arise from qualifying IP.  The calculation is particularly complex for businesses simultaneously claiming R&D tax credits and early planning will be required if maximum tax advantages are to be achieved.  For companies in both UK and International groups, it may be necessary to consider how IP is held and managed within the group.”

Andy concludes: “With Patent Box fast approaching it is clear that those who act now will secure a significant competitive edge through long term corporation tax savings.”