The Patent Box regime, which comes into effect in April 2013, will provide valuable relief for those developing and exploiting qualifying patents. In brief, the new regime will enable companies generating Relevant Intellectual Property Profit (RIPP) from qualifying patents, to elect for tax to be charged on those profits at a reduced rate of 10%.
The rules are fairly generous in that the company can include all of the profits generated by the sale of products containing just one qualifying patent (there are, of course, anti-avoidance rules to prevent manipulation of this rule). There are also computational rules to exclude any ‘routine’ profit as well as any profit attributable to marketing IP. Nonetheless, the fact that a single qualifying patent is enough to bring profits from a product into the Patent Box computation should mean that many SMEs could benefit.
The mechanism by which the relief is actually given – by way of a computational deduction – means that SMEs paying corporation tax at the small profits rate (currently 20%) will actually have a Patent Box rate slightly lower than 10%.
So, for SMEs this could be a very generous and important relief.
As long as they claim it.
Why wouldn’t they? Well, the same could be said about R&D relief but many SMEs are missing out on that incentive. I fear that the Patent Box could face the same challenges and too many SMEs will fail to take advantage.
For more information, please visit my website. If you would like to discuss your company’s potential Patent Box claim, please do contact me.
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