At the moment the spotlight is very firmly on R&D Tax Relief with lots of discussion around the new rules and a change in the rates proposed from next April. Hiding in its shadow is another Tax Relief which is set to become even more beneficial for businesses who use it – Patent Box.
The Patent Box Tax Relief turns 10 next year after it was first introduced in 2013. There are some significant changes to it which will come into effect from 1st April 2023. The main change is in the rate of corporation tax, will see it increase from 19% to 25%.
Widely talked about as a 10% tax rate for qualifying patented profits, the benefit of Patent Box is calculated as an additional deduction against your taxable trading profits. This has the effect of taxing a proportion of a company’s taxable profits at the reduced rate of 10%. With the main rate set to rise to 25%, this increases the tax saving by over 50% from 9% to 15%.
Patent Box was introduced almost 10 years ago, with the aims of increasing the level of patenting for UK developed IP, encouraging more manufacturing and sales of innovative products in the UK and increasing the number of associated high-value jobs in the UK. The numbers of claimants has grown, but comparatively few companies claim Patent Box relief when compared with R&D relief.
The latest stats from HMRC estimate that 1,535 companies will claim £1,205m of relief for the 20-21 tax year, with the majority of claimants being companies in the manufacturing and science/tech sectors. Whilst it is to be expected that most companies patenting their technology would be in these fields, we have claimants based in many different industries, including software.
We encourage all our R&D clients to consider the potential for patenting the technology they are developing, and we work closely with Patent Attorneys to ensure our clients have access to patent support. Our team of Patent Box experts work with our clients to advise on all aspects of patent box relief from establishing eligibility through to submitting the claim to HMRC.
If you are one of the many companies currently claiming R&D relief, but you haven’t considered Patent Box, or it’s not something you’ve looked at for a while and you would like to explore the possibilities in this area again in view of the increased benefit going forward, please get in touch.
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