The tax benefits from the forthcoming 'patent box' tax regime are substantial – a reduced rate of corporation tax on relevant profits, decreasing from an approximate effective rate of 16% in 2013 down to an effective rate of 10% from 2017. So how do you determine whether any technical innovations you make might qualify as inventions that are patentable and could reduce your corporate tax liability?

Patentability

To benefit from the patent box, certain criteria need to be met. For most companies, this will involve obtaining a UK or European patent that covers a technology which generates profit. So, could a company in the financial services sector obtain a UK or European patent for an innovation? The assessment is necessarily very technical and management may need to discuss it with the individual responsible for the relevant technical innovation before any conclusions can be reached. Advances in information technology (IT) can qualify.

The criteria for patentability are the same in the UK and in Europe; the invention:

  • must be new
  • must not be obvious
  • must not be excluded from patentability.

There are exclusions for 'methods of doing business' and 'programs for computers', but in practice it can be quite simple to avoid the exclusions and many patents have been granted for such things.

Fundamentally, if an invention provides a technical advance over what is already known (already known work is called the 'prior art'), it is not excluded from patentability. The technical advance can be almost anything. Patents are granted for inventions that provide a new technical function, that perform a task more quickly, with lower resource (processor, memory, bandwidth, etc.),

more reliably, more securely, or even in a way that is more convenient for a user. The invention must also not be obvious over the prior art; this is not much of a hurdle in many cases.

Beneficial research and development (R&D) tax reliefs for qualifying expenditure should also not be overlooked (see the article 'Are you claiming R&D tax relief on software development?' in the spring edition of this bulletin).

Existing patents

It may help to look at some existing patents to get a better idea of the sorts of invention which can be patented, particularly as some patents are granted in areas which, on first sight, do not obviously qualify. However, closer inspection of the applications shows that the area of use is usually a minor consideration. Instead, what is important is the invention.

Trading system

European patent EP 1641213 concerns a trading system. The invention improves the processing of messages to reduce processing throughput time. The difficulty was in demonstrating that the invention did not simply achieve faster processing, which could be the result of mere automation, but rather that it reduced throughput time. This suggests that the invention affects the way in which the underlying computer operates. Furthermore, the technical features which provide the solution are plainly set out in the patent claims. The claims relate to a method of crediting an account in a certain way that is at least slightly more secure than the closest prior art.

Payment system

European patent number EP 1286317 relates to payments. It defines the invention in terms of a "method of crediting an account ..." which includes various steps, some of which relate to handling validation information. The effect of the invention here is a

secure way of crediting an account. The technical features which provide the solution are plainly set out in the patent claims. What the claims cover is a method of crediting an account in a certain way, a way that is at least slightly more secure than the closest prior art.

Mathematical simulation

Our last example, EP 1257904, relates to a particular way of reducing the computation outlay for a mathematical simulation. While this patent related to circuit simulation, it could easily relate to simulation of something else, such as a stock market or other financial system. Other European patents have been granted in the area of simulating or modelling other systems.

So what can we learn from these examples and others like them?

European and UK patents are granted for computer-implemented innovations, even when the innovation relates to improved trading or some other nontechnical endeavour. That does not mean to say that all patent applications in the field of payment and trading systems will succeed. Each innovation or invention is different and the chances of success depend on the nature of it, as well as how it is presented and described in the application to the patent office.

Next steps

Once you have decided that you want to patent your technology, what do you have to do? The first step is to identify an invention (or inventions) that is suitable in that it is potentially patentable and commercially useful. Then speak with a patent attorney for a view on how likely it is to be patented and an accountant to discuss what the tax benefit might be, including possible R&D claims. If you are happy with the prospects you can then work with the patent attorney to start the process of applying for a patent.

Determining the tax benefit from the patent box is not a simple exercise, particularly when the patentable innovation is included as part of a wider product or service. However, as IT advances can qualify, the potential tax benefits are significant and, with the rules coming in shortly, now is the time to look at how your company may benefit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.