Is your Patent Box in good order?
It has become apparent over the last few weeks that HMRC are starting to look at Patent Box tax relief claims in more detail than they have historically. Hundreds of companies have recently received a letter, which is effectively a prompt to send more detailed information regarding the way that the relief has been calculated, including any rationale for assumptions and allocations used.
As an overview, Patent Box tax relief is a relatively underclaimed tax relief. In the most recent figures published by HMRC, only 1,650 claims were made in the 2023 to 2024 financial year, which is broadly similar to the previous year. The total value of this relief, however, has increased markedly from £1.45 billion in 2022-23 to £1.98 billion in 2023-24. This is predominantly driven by the increased main rate of corporation tax from 19% to 25%, whilst the “IP rate” (the effective rate of tax paid by claimants on eligible profits) has stayed at 10%. This effectively means that the rate of relief claimable on profits deriving from qualifying intellectual property has increased from 9% to 15%, hence the jump in total relief claimed.
There has certainly been a tangible increase in interest in the scheme since this relief has increased in its lucrativeness; in comparison, the R&D tax relief scheme, which has been the subject of scrutiny over the last few years, has seen its value fall to around 16.2% of eligible expenditure as a maximum (aside from R&D-intensive SMEs). This has resulted in a shift of priority for a lot of companies, particularly those making a profit and owning patents registered in the UK or Europe.
With the increased relief, it is perhaps unsurprising that HMRC are taking a keener interest in how the relief is being calculated. The letter that is being circulated does note that it is not mandatory for companies to provide a report or accompanying calculations; however, it seems to be implied that this will increase the likelihood of a compliance check being carried out.
As a matter of course, YesTax have always undertaken detailed calculations in a compliant manner, providing a report to HMRC with detailed substantiations so that everything is laid out clearly with each claim made. If you need any further information about any aspect of Patent Box tax relief or require any assistance, please do not hesitate to contact us at hello@yes.tax.
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