Limited window to elect into the Patent Box

The Patent Box reduces the rate of corporation tax payable by companies developing and exploiting patents in the UK to 10%. A joint statement by the UK and German governments on 11 November 2014, has announced that companies now only have until June 2016 to elect into the regime.

The Patent Box has been under scrutiny by the European Commission ever since it was introduced in April 2013 on the grounds that it is uncompetitive and amounts to State Aid. This latest change has resulted from broader OECD and G20 BEPS negotiations.

The key points from the joint statement are that:

  • The Patent Box will close to entrants from June 2016
  • It will be abolished from 2021
  • It will be replaced by a new regime which will more closely link the tax relief given to the research and development (R&D) expenditure incurred in developing the patent.

Not only is it widely expected that the new regime will be less generous than the Patent Box in tax terms, it is also likely to introduce an additional compliance burden as companies will need to identify and match R&D costs on a patent by patent basis.

Companies currently developing and commercialising IP in the UK should take this now limited opportunity to review their patent activities and consider electing into the Patent Box. An election can be made as soon as a patent application is filed and will reduce the corporation tax payable on any profits of products incorporating the patent, royalties or licence fees earned from the patent or profits on the disposal of the patent to 10%. These benefits should then be locked in until the new regime is launched in 2021.

For further information and help with Patent Box queries please contact the TaxDesk on 0845 4900 509 and ask for Paul Howard.