Patent Box: Is your business missing out on an invaluable cash flow boost?

Jonathan Scott, Tax Partner at Haines Watts discusses the huge disparity in Patent Box claims across the UK and why now might be the perfect time to apply for the relief.

Even though Patent Box was introduced by the UK Government 10 years ago, it still continues to be one of the most underutilised tax reliefs by businesses across the country.

And nowhere more so is this the case than in the North of England and Scotland, which only account for just over a quarter of all Patent Box claims.

Whether it’s lack of awareness of the relief, or the misconception that UK patents cost hundreds of thousands of pounds, Patent Box continues to be a missed opportunity for many. Especially when considering patent application rates have been rising significantly over the last 4 years.

With the average Patent Box claim value coming in at nearly £875,000, the relief has the potential to breathe a new lease of life into businesses, especially during these economically challenging times.

What is Patent Box?

Patent Box was implemented to encourage innovation in the UK by rewarding businesses for commercialising their intellectual property.

The relief allows qualifying businesses to claim an effective corporate tax rate of 10% on eligible profits, which is more than half of the average UK corporation tax rate as of 1 April.

Whether it be sales on patented products and processes, products which incorporate patented items, or income received as a result of breaches on patent rights, all of these profits could qualify for the relief.

Who can claim Patent Box?

If your business holds a patent, makes a profit from these patented inventions and is liable to Corporation Tax, you could qualify for the relief.

To be granted a patent, your invention must be entirely new and something that can either be used or made – not just a simple modification of something that already exists.

You can check whether your invention does qualify as new before you apply, on the Government’s website.

Why now is the perfect time to consider Patent Box

With corporation tax rates rising to 25% as of 1 April this year, Patent Box has never been more valuable. Companies will be paying more tax on their profits, making the value of the tax break even bigger.
And when considering that Patent Box often goes hand in hand with R&D tax relief, taking a hybrid approach and utilising both reliefs could result in significant tax savings. Unlike loans and some grants, the relief doesn’t have to be repaid either, meaning it can inject a new lifeblood into businesses during these financially challenging times.

It’s worth noting that both Patent Box and R&D Tax Relief are highly complex areas of tax, so we would always recommend consulting a qualified advisor before pressing ahead with your claim.

Is a patent the right move for my business?

There’s a huge misconception that patents come with a six figure bill. The reality is that holding a UK-only patent can cost around £5,000-£6,000. In the long run, the rewards of the investment can be huge when considering the rewards Patent Box has to offer, especially in tandem with R&D tax relief.

But aside from the tax relief, patents can really help to boost competitive advantage, by protecting their intellectual property from similar businesses. Ultimately this can lead to increased market share, which comes with inevitable advantages in a commercial sense.

What does applying for a patent and Patent Box look like?

There’s no denying that applying for a patent can be a long-winded process, sometimes taking upwards of five years. However, all is not lost. Your business can elect in to the relief before your patent has even been granted.

In practice, this means you can claim for the qualifying profits which have been generated from the date you apply for the patent and when it is finally granted. The accumulated relief is then claimed in your tax return for the year that your patent is awarded.

Supporting you with Patent Box

As previously mentioned, Patent Box is a complex area of tax. It involves technical formula and separate calculations for each individual patented product and/or IP right.

Whether it’s assessing your eligibility, identifying qualifying profits, submitting your claim or answering your questions relating to Patent Box, our team of experts are on hand to support you.