The much-heralded Patent Box represents a substantial leap in competitive tax policy in the UK.
For over a decade, the Government has supported activities to create intellectual property (‘IP’) through the R&D tax relief system but offered no incentive to businesses wishing to vest the resulting IP within the UK, hence, large businesses tended to move valuable IP overseas to lower tax jurisdictions.
Although the Patent Box was originally devised by Labour, the current Government picked up the baton and have begun to phase in the scheme from 1 April 2013.
The Patent Box is available to companies but it does not apply automatically (i.e. companies must elect into the scheme). There are several conditions which must be adhered to:
- The company must hold a qualifying UK or European patent or license to develop such rights.
- The company (or group) must have been involved with the innovation behind the patent (the Development Condition).
- Passive holding companies may not enter the scheme, the company must have either developed the IP or is actively managing it (the Active Ownership Condition).
As a result of electing into the scheme, the relevant IP income will be calculated using the legislative approach provided by the Treasury to reduce the corporation tax liability. The Patent Box effect will be phased in over the next few years with the full benefit (a 10% corporate tax rate) being available for the 2017/18 tax year.
Gateley Capitus offers a range of advisory and compliance services relating to the Patent Box, including advice on the operation of the scheme and how it will affect a company or group, and annual calculation of the Patent Box deduction for utilisation within the company tax return.