Patent Box: your questions, answered
Patent Box is part of the government’s growth agenda. It presents a financial incentive to develop, commercialise and retain innovative technology in this country. Put simply, the government wants to pay companies to invest in innovation and the Patent Box scheme is one of the tools it’s deployed to do that.
So, the Patent Box enables UK companies to pay a reduced corporation tax rate of 10% on profits resulting from the sales of products or services containing a patented innovation. Often the innovation may not be substantial. Many patented inventions are small technical improvements on existing products or processes.
As with any properly managed scheme, the HMRC administered rules can appear complex. The ‘streaming methodology’ versus ‘formulaic approach’ is an example. MPA has the experience and expertise to interpret these accurately and has helped our clients benefit from the scheme.
We understand that the scheme rules can be very confusing, so we’ve highlighted some of the commonly asked questions for you below.
We don’t make our own products; can we still claim?
The short answer is yes, you’re still eligible. If you’re licensing your patent to someone else to exploit and are receiving a license fee or royalty this income can be included in your claim.
Will it lead to an enquiry by HMRC if we claim both Patent Box and R&D tax credits?
Not if you work with an expert on your claim. Most of our clients that claim under the Patent Box scheme also claim for R&D tax credits.
The two forms of relief are intentionally designed to be claimed alongside one another. The government is proactive in its goal to grow the UK economy, and believe that investing in innovative companies is directly linked to this.
It is extremely important that care is taken where a combination of schemes is being utilised. How you claim them together can significantly contribute to maximising the benefit. MPA’s experience ensures you maximise your claim and ensure no HMRC rules are breached.
See how Morgana Systems benefited from combining the two schemes.
Can we still claim if we share the IP with another company?
It’s not a simple yes or no answer.
At MPA we will evaluate your individual circumstances to provide tailored advice.
It is not uncommon for Companies to undertake R&D collaboratively through Cost Sharing arrangements for example. The resulting IP is often then jointly owned. The legislation is written so that clients are not penalised nor advantaged under the Patent Box regime. Both Companies will be able to claim providing the relevant criteria is met.
We do not keep records of our sales revenue by product, how will we make a claim?
Due to the complexities of the scheme, we are required to separate your revenue into IP related and non-IP related income. This means looking at your P&L record structure in a different way. HMRC expect companies to have kept appropriate records as part of the Corporation Tax Self-Assessment regime and these records are no different.
Under the old rules, prior to the June 2016 modified (Nexus) IP regime, we can apply reasonable apportionment to help you. As we move into the new regime, we will help to set up a simple record keeping process which will enable you to support the requirements of the new rules. HMRC only require an overview of the actual calculation to be submitted with a claim, but may ask for further supporting evidence in the event of an enquiry.
Do I qualify if my patent is registered in a country outside the UK?
No, you do not. To qualify for the Patent Box scheme, you must have a GB registered patent. A patent registered in the EU will also qualify if they have GB as a designated jurisdiction. MPA have the experience to advice you on the process, timings and costs of obtaining a GB patent.
Isn’t the process of getting a patent difficult, long and expensive?
No. It’s possible to obtain a patent in under 9 months and at a cost of no more than £5,000. When you consider the financial benefit available under the scheme its an investment in time and money worth seriously considering. MPA can advise you on which innovations to consider and connect you with Patent Attorneys to complete the work.
Tp24 took the “skinny patent” approach, see how MPA helped them quickly secure protection and take advantage of government tax support.