Patent Box – how and when to claim relief on pending patents
In recent years more and more companies have patented their intellectual property to allow them to benefit from Patent Box tax relief in addition to the normal commercial rationale behind IP protection strategy. This generous scheme enables companies to pay just 10% corporation tax on profits deriving from qualifying patents, in comparison to the main rate of 19% which is scheduled to rise to 25% next April.
It's important to know at what point companies can benefit from this 10% rate. Some of the terminology can be easily confused, and the process for getting a patent granted is not widely known.
The first point of call is getting a patent filed, which involves writing an application (usually via a patent attorney) and then filing this with the UK Intellectual Property Office. The point at which this is filed is known as the “filing date” – from a Patent Box perspective this is effectively day one from when relief can eventually be claimed.
The next stage is known as the “publication date”, which is when the patent is actually published. It can take a year or two to get to this stage, assuming that the application is not terminated. From a Patent Box point of view the date is not particularly relevant other than for the knowledge that the patent is moving closer towards being granted.
The final relevant stage is the “date of grant”, which the company generally receives notice of in advance. This can quite often be well over 3 years from the initial filing date and up to 4½ years for a UK application. Therefore, companies may find it beneficial to record the income and profits that it makes on the sales of “patent pending” items in the years between filing and eventual grant.
It is important to note that, although companies cannot claim Patent Box relief in respect of a patent until its eventual grant, it can miss out on relief by not electing in to the scheme in a timely manner. Therefore, it is extremely important to obtain professional advice regarding election into the scheme and effectively recording income and expenditure in a way that reduces the complexity of retrospective calculations a number of years down the line.
For further information on claiming Patent Box tax relief please do not hesitate to contact us at hello@yes.tax.
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