Patent Box is a government incentive designed to encourage companies to retain and commercialise intellectual property in the UK. It applies a reduced tax rate to profits derived from patented products, processes, or licensing. But many businesses miss out on this incentive either through issues with their company structure or having the wrong IP protections. In this article we outline how the Patent Box scheme might work for your business.

How does Patent Box work?

Eligible companies will pay a lower rate of just 10% on their patent box profits, compared to the main corporation tax rate of 25%. The benefits of the scheme can be substantial for more lucrative corporations, and businesses with high-margin products. However, the calculation can cause complications that will reduce the benefits obtained. We work with businesses to identify the potential tax benefits of using this incentive, by modelling their product and value streams.

Who is eligible to claim the Patent Box scheme?

To qualify, your company must:

• Be a UK-based limited company paying UK corporation tax

• Own or exclusively license a granted patent awarded by the UK Intellectual Property Office, the European Patent Office, or a designated EEA nation

• Have been involved in the development of the patented invention

• Generate trading profits from the patented invention

How to claim

If claiming for the first time, you must make an election into the Patent Box system within two years of the relevant accounting period in which relief is sought. A company can elect early, before a patent is awarded, to claim tax reduction on qualifying revenues earned between the filing of the patent application and the grant of the patent - the patent pending period. The accumulated relief is claimed in the year the patent is awarded on the tax return. After this point, the patent box scheme follows the normal corporation tax rules allowing amendments to be made up to two years after the end of the qualifying accounting period.

It is always worth modelling any claim ahead of electing to the scheme to allow IP to be moved or restructured to avoid losing out on any potential benefits. For first time claimants this process can be complex, and we can help with ensuring the correct splits are made and allocating costs to the correct parts of the calculation. We offer a modelling service to plan out patent box submissions to support this process.

Our modelling service

1. Review your IP portfolio for eligible patents

2. Model potential tax savings using your product revenue streams

3. Plan your election and claim timing strategically

4. Align accounting systems to support profit streaming by patent and setting up your internal records to meet HMRC documentation requirements

How we can help

By developing a business plan for Patent Box and other R&D incentives available in the UK and abroad, you’ll get the most out of the support you receive over the life of your products.

We can work with you to get the best possible tax savings by examining your current company structures and preparing to maximise your Patent Box savings. We can assist with planning when to enter the scheme with our modelling service, and once you decide to make a claim, we can assist with ensuring your streaming calculations are accurate. Our team takes a holistic approach to R&D and innovation incentives, overlaying international incentives to give you a full picture of how these funding sources can help you achieve your goals.

The innovation incentives team at Buzzacott will assess the profits earned by patented products so they can be included in your Patent Box submission and provide year on year support to ensure your claims are correct. We can help track expenditure and profits from patents that have been applied for but not yet awarded and ensure your company has correctly elected into the scheme to make future claims upon grant of your patent.

Get in touch

If you would like to speak to one of our Patent Box experts to find out more about how we can help, please get in touch via the form below.