By Jeni Lee, Tax Manager at Bracey’s • 3 min read •
In our previous article, R&D tax relief – could your company be slipping through the cracks? we discussed how Research & Development (R&D) tax relief encourages companies to innovate. Tax relief incentives do not stop once the development of a product is complete. Now we take a look at another tax incentive available when qualifying development activities have successfully generated a new product, service, or process; the Patent Box Deduction.
How does it work?
The Patent Box Deduction reduces the rate of Corporation Tax applicable to profits generated by patented products from 19% to 10%.
Claiming the Patent Box Deduction can significantly reduce a company’s Corporation Tax liabilities annually, leaving more cash available to continue innovating.
Why are so many companies missing out?
Despite the Patent Box Regime being available since 2013, the number of companies claiming the relief has been low. During 2016-17 only 1,170 companies claimed the relief.
Whilst a lot of companies are aware that R&D tax relief is available during the development stage, they are often unaware of the Corporation Tax relief available during the later stages of the innovation life cycle.
Claims for the Patent Box Deduction are underclaimed for two key reasons:
- Companies and even accountants filing Corporation Tax returns are not always aware that the relief is available
- The calculations can be complex
This, unfortunately for innovators, presents a huge missed opportunity.
Could your company qualify?
Where a qualifying development project results in a product or process which is patented, or the company holds an exclusive licence to IP rights, then the Patent Box Deduction may be available.
With the awareness levels of Patent Box tax relief so low, there are many companies that have not gone through the process of patenting their IP; this is especially true of small to medium-sized companies who only claim roughly 5% of the Patent Box tax relief awarded.
Companies conducting R&D should be thinking ahead about patenting the products they have developed. This will not only secure exclusivity on the IP but will also secure future tax relief availability, once the development stage is complete.
How do I claim the Patent Box deduction?
The Patent Box Deduction is claimed on a company’s Corporation Tax return. A claim must be made within two years of the end of an accounting period. E.g. for an accounting period ended 30 June 2018, the submission deadline is 30 June 2020.
The process of making a claim is not straightforward and that is why it is imperative to employ a Patent Box expert to maximise your company’s claim.
Our team of tax experts at Bracey’s are well placed to assist you with calculating patent-related profits and the subsequent Patent Box Deduction available. We make the claim process simple and straightforward whilst maximising the relief claimed.
Obtaining tax relief for innovation does not have to stop when a product stops being developed.
We can also provide advice on whether your company has IP that is suitable for patenting and can assist in planning for your company’s future R&D efforts. We want to help our clients to ensure they are making the most of the innovation tax incentives available.
An initial conversation with one of our tax experts could lead to huge tax savings for years to come.
We offer a free meeting to discuss your company’s IP and the availability of the Patent Box Deduction for your company. Please feel free to contact us if you think the Patent Box Deduction could be claimed by your company.