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British and European Patent and Trade Mark Attorneys

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UK Patent Box to be Revised

Posted by in Patents
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The UK Patent Box has enjoyed a good level of success.  According to the UK Government, by mid 2015 over 639 companies had used it and received a benefit totaling £335,000,000.  

The scheme has had its critics and in late 2014 it looked like the entire scheme may be abolished.  Fortunately for UK based businesses, we are pleased to report that this does not appear to be the case and the scheme looks set to continue.

When accused by Germany (and others) of "promoting unfair or harmful trade competition" and "encouraging companies to artificially shift their profits to the UK to the detriment of other states' tax collections", the UK Government proposed to close its patent box tax break scheme which offered companies a 10% tax rate on qualifying profits.  However, after a lengthy debate between a number of EU member states, agreement has been reached for the scheme subject to some changes.

We understand that grandfathering provisions will enable existing users of the UK scheme to continue to use it in its current form until 2021.  Consultations are ongoing as to the precise changes (much of which revolve around calculation on the proportion of income that can be claimed at the reduced corporation tax rate) but it appears clear that companies will be able to take advantage of the scheme into the future.

The changes will be part of the 2016 Finance Act and we understand will come into effect on or before 30 June 2016.

The modified scheme is intended to be "Nexus" compliant. The Nexus concerns the proportion of income derived from an IP asset that can be claimed.  The Example given by the UK Government in its consultation is as follows:

“The numerator of the fraction comprises the taxpayer’s “own” direct R&D expenditure on the IP – including any conducted through branches – plus any R&D subcontracted to an unrelated party (“qualifying expenditure”). The denominator is comprised of qualifying expenditure plus any R&D subcontracted to a related party and any acquisition or licensing costs (“non qualifying expenditure”). So if, for example, a company made profit P from an item of IP, and the company carried out 70% of the R&D itself the nexus fraction would be 0.7 and the profit to which the 10% rate would apply would be 0.7 x P

– the numerator may include an “uplift” allowing some non qualifying expenditure to be added (up to 30% of the qualifying expenditure) providing such costs have actually been incurred. It is included in recognition of the fact that companies which acquired a portion of the IP from, or outsourced R&D activity to, a related party may themselves still be responsible for much of the value creation that contributed to IP income and that the nexus fraction should not unfairly disadvantage groups that have operated in this way under existing rules.”

A number of our clients benefit from the Patent Box and from our expertise in quickly securing UK patent rights (needed so that patent box benefits can be claimed).  There are various tactics that can be applied to take best effect of the scheme and your IP.  Should you have any queries or be interested in strategic advice on how the Patent Box could be of benefit to your company, we would be happy to speak with you - please contact us.

Tagged in: Patent Box patents UK
Jonathan is a British and European Patent Attorney. He studied Cybernetics with Computer Science at Reading University. He is also a Chartered IT Professional and is a member of the BCS, the Chartered Institute for IT. He is active in promoting IP awareness in IT companies and spends much of his time dealing with both IP for IT and technical IT issues.