Good News for Innovators in Sussex

The UK Patent Box tax regime came into force on 1 April 2013 and by 2017 will allow a 10% rate of corporation tax to be applied to profits earned from patented innovations and certain other Intellectual Property (IP) rights. With the current rate of UK corporation tax standing at 20% the incentive for participating in the scheme is obvious.

Taken with the established and highly popular Research & Development (R&D) regime the introduction of Patent Box represents an attempt by the Government to open the UK to high-value businesses through a highly competitive tax regime that supports IP from initial concept to commercialisation. HM Revenue & Customs have estimated that the scheme will cost the Treasury some £1.1 billion in tax foregone by 2019 so the authorities must see massive potential for attracting overseas capital to the UK.

GlaxoSmithKline has cited Patent Box as the reason behind additional UK investment of £500m in UK manufacturing with the creation of 1,000 new jobs but how has take-up been amongst the SME sector and particularly in the south east?

Recent studies have shown that there is a knowledge gap between SME’s and multinationals when it comes to patenting and across the whole of the UK there are traditionally fewer patent applications than in equivalent European sectors. Businesses in the south east are however more inclined to apply for a patent than those elsewhere in the UK. A number of reasons have been given for this:

  • The perceived cost of enforcing a patent if infringed,
  • The view that it exposes IP to mimicking by competitors,
  • The perception that patenting is really only appropriate to the pharmaceutical & IT sectors,
  • The belief that applying for a patent is expensive.

Some of these are legitimate concerns but should be measured against the potential cash benefits that the Patent Box regime can bring.

There is a concern that the shelf life for the relief could be limited. The incentive has been attacked through the OECD as competitively ‘harmful’ in attracting IP away from the jurisdiction of origin. The UK has had to bow to international pressure to restrict the regime to the exploitation of IP that has been already been through the R&D tax incentive regime.

As part of the agreement, all countries with similar patent box arrangements will close their existing regimes to new entrants by June 2016 and abolish them by June 2021. The Treasury said that in line with normal policy, it would consult on the required legal changes.

Whether any replacement scheme will be as attractive as the existing one remains to be seen, so if tax certainty is what a company needs, it may now be time to give serious thought to signing up to the regime.

Mike Chapman, Senior Manager, Corporate Tax, Knill James
www.knilljames.co.uk

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