R&D Tax Claims: Are you missing out on Patent Box relief?

First up what actually is the Patent Box?

The UK patent box was introduced from 1 April 2013 and enables companies to apply a lower rate of corporation tax of 10% to profits arising from patented inventions or processes. With the corporation tax rate set to rise to 25% from 1 April 2023 the potential tax saving available to companies will rise to 15% on profits in patent box (currently a 9% saving today).

The number of companies claiming patent box relief is significantly less than those claiming R&D with the latest HMRC statistics showing that 1,375 companies are projected to have claimed patent box relief for the tax year 2019 to 2020, of these 72% are SME’s with 8% of the total £1,1bn relief being attributable to these claims. This is compared to 6,000 patent applications made during 2019, of which 4,000 were granted, and 76,225 SME’s claiming £4.4bn of R&D relief under the SME scheme.

If you are a profitable SME making an R&D claim and own the IP resulting from the R&D activity you could be eligible to claim.

To be eligible companies need to directly hold, or have an exclusive license over, a UK or EU registered patent, and have contributed to the development of the IP right. Only one patent is needed to potentially turn the patent box on in relation to all profits arising from the sale of the patented invention. For example, a patented gear wheel on a bike would enable all income from the sale of the bike to be brought into patent box as it is integral to the operation of the bike and forms part of the larger item that is sold. Take a look at your products and services, something may qualify.

Once the eligibility conditions are met it is necessary to identify all the relevant revenues that can be included in the patent box. A formulaic calculation is required, however once completed for the first year this can generally be rolled forward.

If you don’t already hold a patent but are making R&D claims you may wish to explore whether you have patentable inventions and we can put you in touch with a patent lawyer to help you assess this. There are similarities in the requirements for R&D and patenting as both require the development of something new and that goes beyond simple modifications. Whilst some businesses are worried about putting their IP in the public domain, as noted above, the patenting of just one integral part of a product can bring all revenues into patent box so this should not be viewed as a barrier.

If you are making R&D claims, hold a patent (or think you could) and pay corporation tax, get in touch with us to see if you could benefit from patent box.

Example Benefit:

There are billions of pounds set aside from the Government to reward UK companies for investing in innovation. The impact on businesses of any size can be invaluable so investigating eligibility is common business sense.

Wilson Partners’ tax team can guide you through any tax claims that could be beneficial to the growth and development of your business’ IP.

Did you know? R&D tax reliefs are changing from April 2023. Register for our webinar to find out more.