Do you own a patent? If so, you could benefit from a huge tax saving called the Patent Box scheme. This guide will walk you through what the Patent Box scheme is, whether you qualify, and how you can apply for it.
What is the Patent Box scheme?
The Patent Box allows eligible businesses to pay just 10% (rather than 19%) Corporation Tax on profits earned on their patented goods or services. The government introduced the tax relief to encourage businesses to commercialise their intellectual property (IP).
Is my business eligible for Patent Box tax relief?
There are criteria that your business must satisfy to be eligible for Patent Box benefits. You must:
be liable for Corporation Tax, so you must be operating as a limited company.
own a patent, or have exclusive permission (known as ‘licence’) to use it.
make a profit from patented inventions, such as selling products or licensing the patent rights to someone else for a profit.
have undertaken qualifying development on the patent.
have a patent granted by either the UK Intellectual Property Office or the European Patent Office.
If you haven’t already patented your inventions, ideas, or software, you may want to get the ball rolling.
Is Patent Box tax relief the same as R&D tax credits?
The Patent Box and R&D tax relief schemes are two separate types of relief. Essentially, the R&D tax credit deals with the ‘back end’ costs of developing and creating. The Patent Box scheme deals with the profits made on the patented outcome.
If you’re researching and developing an innovative product or service that will benefit a lot of people, you may be able to claim Research and Development (R&D) tax credits. This is a form of tax relief available on the costs of staffing, materials and so on, associated with the research project.
The Patent Box helps companies to reduce their tax bill, by enabling them to pay a lower rate of Corporation Tax on the profits that they make on something they have patented.
Can I claim R&D and Patent Box tax relief on the same thing?
The two tax relief schemes can be used together. For instance, you might claim R&D tax credits on the project costs when developing your innovation, patent it, and then use the Patent Box scheme to pay less Corporation Tax on the money you make from your patented product or service.
How do I elect into the Patent Box?
There’s no application form as such, which only adds to the mystery! To use the Patent Box, HMRC advise that those eligible should either write to them, or include the relief as part of their calculations when completing a company tax return.
If you would like to learn more about how our online accountancy services can help your business, get an instant quote from The Accountancy Partnership, or give us a call on 020 3355 4047.
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Forensics graduate-turned copywriter and blogger. I love turning complex topics into easy to understand, yet engaging pieces of content.