It’s not often that HMRC gives you a present. Well, if they do then why not open the box? Since its
introduction in 2013 HMRC has been encouraging companies with patented products or exclusive
licenses to opt into its latest lucrative tax inventive – Patent Box. The incentive was introduced in
order to promote the commercialisation of IP in the UK but it also applies to sales of patented
products by UK companies whose patent was granted in the European Economic Area.
So, what are the benefits? Well, companies can benefit from a reduced rate of corporation tax of
10% on relevant IP profits from their patented or exclusively licensed products. This means that if a
company is selling purely patented/exclusively licensed products it can effectively half their
corporation tax bill. It also means that in a group situation a group company, company A, can patent
an invention, which it exclusively licenses to a fellow group company, company B, which would be
able to claim Patent Box relief.
Additionally, if a company is selling a process/product which contains or uses a patented component
then the relevant IP profits apply to sales of the larger product/process – this can be particularly
lucrative in the food and pharmaceuticals industry, where a product’s sale may depend on the
existence of a patented active ingredient. For example, Leyton recently made a claim for a FTSE 250
company on sales of fruit juice bottles, based on the inclusion of a patented bottle cap.
So, what’s the catch you may ask? Well, unlike R&D tax relief, your company needs to be paying
Corporation Tax. In addition, the amount of relief is roughly proportional to the percentage of
relevant IP sales your company has as a proportion of its total sales. This means that companies with
a large proportion of patented sales will reap more rewards. HMRC has also been “phasing in” the
relief so patented sales in earlier years attract slightly less relief than later ones.
What about if your company is claiming R&D you may be thinking? Can it still claim? Yes, an R&D
claim does not affect your ability to claim Patent Box. The R&D deduction is simply applied after the
Patent Box deduction.
And what if your company’s patent is pending? Your company can still benefit if a patent is pending
but it will have to elect into the Patent Box as soon as possible. The company will not benefit until
the patent is granted – the benefit from the relevant IP profits from the pending period is simply
rolled forward and crystallised in the period where the patent is granted.
“So, how can Leyton assist me with making a claim?” you may ask. Using our industry expertise, we
will advise you on how to maximise your relevant IP profits by including sales of more products with
patented/exclusively licensed components. We also prepare a supporting technical report which
justifies the claim and pre-empts any questions by HMRC. Moreover, we can help your company
with adapting to the new rules including mandatory streaming for new IP created on or after 1 July
2016 as well as the Nexus Fraction, which could reduce the benefit for certain companies.
By Demetrios Kyriacou ACA, Research & Development – Senior Consultant, Leyton
Leyton are sponsoring our conference: A vision for Life Sciences in Scotland: Accelerating growth, driving innovation. Book your tickets here.