Time for an election? The benefits of the Patent Box

The Patent Box is a tax incentive introduced in 2013 to encourage innovation in the UK. The regime broadly offers qualifying intellectual property (‘IP’) profits to be taxed at a reduced corporation tax rate of 10%. The current rate of corporation tax is 19% but this is increasing from 1 April 2023 to 25% for […]

The Patent Box is a tax incentive introduced in 2013 to encourage innovation in the UK. The regime broadly offers qualifying intellectual property (‘IP’) profits to be taxed at a reduced corporation tax rate of 10%.

The current rate of corporation tax is 19% but this is increasing from 1 April 2023 to 25% for companies with taxable profits exceeding £250,000. It is also rising to an effective rate of 26.5% for companies with taxable profits between £50,000 and £250,000. The benefit of electing into the Patent Box regime is therefore increasing for many businesses from 1 April 2023, making it a good time to look again at whether an election into the regime should be made.

To qualify for the Patent Box a company must make profits from exploiting qualifying IP. Qualifying IP includes patents that have been granted by the UK Intellectual Property Office or the European Patent Office, and also certain rights granted under the law of specified EEA states, supplementary protection certificates for pharmaceutical, medicinal and veterinary products, and plant breeders’ rights.

It is possible to elect into the benefits of the Patent Box while the patent is pending and the tax benefit will then be taken in the year of grant (subject to a 6-year limit). However, the election must be made within two years of the end of the accounting period that the income relates to.  Being aware that the benefits are available before grant will help ensure that the election can be made in the appropriate return after the patent is granted.

It is therefore worth investigating whether it is a good idea to elect into the regime now, even if the patent has not yet been granted.  As there may be many competing factors to consider with regard to the timing of an election, an early discussion with a tax adviser is highly recommended.

Please contact Rob Meredith at 01633 653198 and rob.meredith@kilsbywilliams.com or your usual contact if you would like to discuss your options in more detail.

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