10% Tax on 'Patent Box Profits'
Income streams from ‘Relevant Patents’ can qualify for a reduced Corporation Tax rate of just 10%.
Qualifying ‘Relevant Patents’
To establish if your company may qualify you will first need to determine if you have (or could apply to register) any ‘Relevant Patents’. In simple terms, these are:
- patents granted by the UK Intellectual Property Office and the European Patent Office
- The company satisfies the ‘development condition’ *.
*In broad terms, to meet the development condition, the company must create or significantly contribute to the creation of the patented invention, or perform a significant amount of activity to develop the patented invention or a product or process incorporating it. There is no statutory definition of ‘significant’ in this context. However, HMRC state that they take into account issues such as time, effort and costs involved.
Simple ownership of patents will not be sufficient to meet the development condition.
Qualifying Patent box income
If you have a ‘Relevant Patent’, there are 5 main categories of income which can qualify as patent box profits:
- income from worldwide sales of the patented item or a product incorporating it
- worldwide licence fees and royalty income
- income from the disposal of patent rights
- income derived from infringement of the rights
- other compensation for lost income that would have been relevant IP income
Electing into the Patent Box regime
To claim Patent Box tax relief you will need to make a formal election.
‘Electing in’ must be effected within 12 months of the tax return filing date deadline for the accounting period in which the election is first required
The election can be revoked at any time, but it will not then be possible to elect back in for another 5 years.
Calculation of Patent Box Profits
This can appear complicated and burdensome, but we can advise you on the records that need to be maintained and thereby make the process much easier.
There are different methods available for calculating eligible profits and some companies are eligible for ‘small claims’ treatment which simplifies the calculations.
Assessments should be made to determine which of the available methods is best in any particular set of circumstances.
Advice on Patent Box
At Sutton McGrath Hartley we can help you:
- find out if you are eligible to patent a new product or process
- put systems in place for easing the administrative burden entailed in making claims
- help you with calculations and maximising the relief itself
In addition, if you have created and/or developed a patent it is likely that you will have incurred expenditure which is ‘Research & Development’ and therefore qualifies for enhanced tax relief. We can help you with R&D claims too.
Call us now to find out more on 0114 2664432 or email firstname.lastname@example.org with your enquiry
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