A patent is a type of intellectual property right intended to protect technical innovation, and its purpose is to enable its owner to prevent third parties from making or selling (or otherwise using for commercial purposes) the innovation covered by the patent claims. However, there is a (lesser known) benefit provided by the Patent Box Scheme.
What is the Patent Box Scheme?
The Patent Box Scheme is designed to encourage companies to keep and commercialise intellectual property in the UK and allows companies to apply a lower rate of Corporation Tax (10%) to profits earned from its patent inventions.
In other words, Patent Box is a government tax relief scheme which effectively means that your company could pay a reduced rate of 10% Corporation Tax if it exploits patented inventions and innovations. Put simply, if a product (or manufacturing process) you make your profits from is patented, then you could cut your Corporation Tax on those profits in half (at current rates).
Some Statistics
There have been over 8000 Patent Box claims since the scheme began in 2013, which equates to £6bn in tax relief already claimed in this way. So, for those companies already claiming the benefit, that often represents a very large saving.
However, a standout statistic from the current figures is that 92% of tax relief is claimed by large companies (source: 2021 Patent Box Statistics | HMRC Stats | GovGrant UK). So SMEs are receiving a tiny percentage of the Patent Box Scheme and potentially missing out on a huge source of untapped funding.
Who can benefit from Patent Box?
You can only use the Patent Box if your company:
- is liable to Corporation Tax
- makes a profit from exploiting patented inventions
- owns or has exclusively licenced-in the patents
- has undertaken qualifying development* on the patents
After 30 June 2016 benefits are restricted if your company
- incurred expenditure in acquiring the patents
- made payments to connected parties for their research and development (R&D) expenditure
What profits qualify Patent Box?
To class profits as intellectual property income, they must come from at least one of the following activities:
- Selling patented products including:
- the patented product
- products incorporating the patented invention
- bespoke spare parts
- licensing out patent rights
- selling patented rights
- infringement income
- damages, insurance or other compensation related to patent rights
Companies in the manufacturing and service sectors can generate qualifying income for the Patent Box if they:
- manufacture using a patented process
- provide a service using a patented tool
What could this mean for you?
SMEs often decide not to patent their technical innovation because of the cost involved. However, that cost should be weighed against the potential tax savings over (up to) 20 years. The degree of innovation doesn’t have to be massive either: incremental technical advances are often just as patentable as disruptive and breakthrough technologies. It is also worth saying that even if only a part of a product is protected by a patent, it can still qualify for the Patent Box Scheme.
With that in mind, then, even if you don’t feel it’s absolutely necessary (from a commercial perspective) to protect your innovation against copying by third parties, it might still be worth securing a patent for it (or part of it) to benefit from the reduction in Corporation Tax offered by the Patent Box Scheme. Worth a second thought anyway…?
Don’t forget though, in order to secure patent protection, you must keep your invention confidential until after a patent application has been filed.
Any questions?
If you want to discuss patenting your innovation or need any other intellectual property advice, please book a free initial consultation by emailing vicki.strachan@strachanip.co.uk or visit our website at https://strachanip.co.uk/contact/
