Making more of Patent Box

Too many businesses are missing out on a potential opportunity to claim tax relief on any profits earned from their patent-protected innovations and in some cases, this could be holding back their investment plans.

The Patent Box initiative was established to encourage innovation and investment in the UK, particularly in R&D-rich sectors such as the advanced manufacturing, pharmaceutical and technology industries. While the scheme is obviously most beneficial to businesses that invest in innovation on an on-going basis, it makes sense for companies of all sizes to sign up to the scheme because any tax relief they secure could help to free up funds to invest in other areas.

Since its introduction, the Patent Box scheme has become widely regarded as one of the most favourable of its type in Europe. While this has attracted some criticism internationally, based on fears that it might be anti-competitive, the scheme remains intact and presents a significant opportunity for many UK-based businesses.

Despite the appeal of the scheme, take up to date has been disappointing low however. A government consultation carried out last year revealed that only 639 companies have opted in to the scheme since its introduction in 2013; benefiting from tax relief to the tune of £335m. However, considering the fact that about 15,000 SMEs claim over £800m in R&D tax credits each year, it is clear that the Patent Box scheme is under used.

It is possible that some businesses are ignoring the Patent Box scheme because of the recent reductions in the rate of Corporation Tax. However, it is important that companies understand that there is still an advantage in using the Patent Box scheme to reduce their tax liability on profits from inventions.      

Businesses considering signing up the scheme for the first time, should seek advice about any profits that might qualify for tax relief under the scheme and put in place plans to track these earnings on an on-going basis.