After 30 June 2016, the amount of profit from an IP asset which can qualify for a reduced 10% rate of Corporation Tax available through the UK Patent Box will depend on the proportion of the asset's development expenditure incurred by the company.
Effectively, the current (more preferential) UK regime will be closed to new entrants; but a pending patent application by 30 June 2016 will be sufficient to take advantage of the grandfathering provisions that allow continued access to the existing regime for another few years (provided that the company also complies with other qualifying requirements by 30 June 2016). This means that companies wishing to take advantage of the current regime for recent or current technological developments are encouraged to identify their inventions and file new applications before 1 July 2016. Patents applied for or granted before 1 July 2016 can be used to elect into the existing rules and the company may then be allowed to calculate its Patent Box benefit on the basis of the existing rules until 30 June 2021.
In the longer term, to maximise benefit from the new regime and ensure sufficient supporting documentation for their future Patent Box claims is available, companies should now begin to start recording R&D spend by patent or at least by product incorporating the patented technology. This data will be required to calculate "R&D fractions*" for determining the Patent Box benefit under the new regime. Depending on the company that incurred the R&D spend and on how the R&D spend was incurred, the benefit under the new regime may be adjusted down compared to the existing regime. This is especially true for companies who sub-contract research intra-group or have acquired IP, who are likely to be most affected under the new regime.
The Patent Box (both the current and future regimes) has the potential to provide a real benefit to many of our clients. Companies that may want to claim under the existing and the future regime are encouraged to contact one of our experts to carry out a review of their R&D and IP ownership arrangements and their systems and processes for recording IP assets and linked R&D expenditure to identify the issues they may face.
Our experts are on hand to talk through the Patent Box changes, assist our clients in mapping out the steps that need to be taken to understand how the changes apply to their IP and help with an IP review and supporting documentation for future Patent Box claims. Olivia Johansson in our London office has a deep understanding of the practical realities of using the UK Patent Box regime and significant experience of helping companies take advantage of IP tax regimes.
*The new Patent Box rules require the calculation of a 'R&D fraction' of qualifying R&D expenditure to overall R&D expenditure incurred to develop an IP asset and then the application of that ratio to the income from the IP asset to determine the income to which the lower tax rates applies. Qualifying R&D expenditure includes expenditure incurred by the taxpayer itself and expenditures for outsourcing R&D to unconnected parties.
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.
