The UK Patent Box provides a new incentive to protect your innovations

07 September 2012

In brief, the encouragement takes the form of a reduced rate of corporation tax (from around 22% today, to about 10% in due course) on qualifying profits (after various other factors have been included in the calculation). The profits can arise, for example, from the sales of products incorporating a patented invention or products made by a patented process; or from the licensing of patent rights.

Important (and in some cases somewhat surprising) features include:

  • The fact that the profits are calculated on the sales of the product as a whole, even if the patented invention only makes up a small part of its value. For example, sales of entire cars would potentially qualify if the cars incorporated a patented speedometer.
  • There only needs to be a patent in one (qualifying) country for sales in all countries to be eligible for this tax relief. In practice, for simplicity and in order to minimise costs, one would usually apply to the UK Patent Office.
  • Profits generated whilst a patent application is pending can also count, once the patent has actually been granted.
  • Novel processes, not just products, can benefit from this scheme, although the calculation of the tax relief is more complicated and is likely to result in less relief.

The point of a patent is usually to try to protect a product from competition over as broad an area as possible (i.e. to exclude as many variants of the inventive product as possible, not just the product itself). However, if the point of the patent is to protect just the product in question (and thereby to benefit from the Patent Box tax relief), rather than to provide broad protection, and if the patent only needs to be obtained in one country, then it becomes possible to reduce the costs of the exercise:

  • a simpler and shorter patent application can be prepared,
  • a narrower scope of ‘claim' will be less likely to attract objections from the patent office examiner, and
  • if objections do arise, they can probably be overcome by agreeing with the examiner's position, and amending the patent application, instead of arguing with the examiner.

We would expect to be able to obtain a patent for our clients in this situation for only a modest sum, from start to finish. Providing that the product is profitable, the tax relief is likely to far exceed this expenditure. We have established links with a number of leading firms of accountants who can provide more guidance concerning the likely return on the investment in the patent application, and on how to claim the tax relief.

Please ask your usual advisor at Potter Clarkson for further details, or contact Helen Johnstone.

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