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Patent Box - A Genuinely Underclaimed Tax Relief
You don’t have to look hard to find any number of advisory firms offering R&D tax relief services in 2022. Over the years, the relief has attracted a number of rogue advisers using deceptive marketing techniques to lure companies in to make claims that would fail under the most basic of scrutiny. HMRC have struggled to combat unscrupulous ‘boutiques’ – many of whom are not accountants or tax advisers and have no professional body to be held accountable to.
However, the fightback has begun. From April 2023, HMRC will introduce a series of measures to combat widespread fraud and abuse of the R&D tax system. This can only be welcomed.
Whilst the R&D tax relief scheme is in the headlines for the wrong reasons, there is another very generous scheme that isn’t getting the publicity it deserves. Patent Box has been in existence since 1 April 2013 and allows companies to benefit from a 10% corporation tax rate on profits attributable to qualifying Intellectual Property (IP). Qualifying IP mainly relates to patents or exclusive licences on patents, as opposed to trademarks or copyrights.
Where a profit-making company is producing a product (or developing a process) that involves a non-obvious solution to a technical problem, an exploratory exercise should be conducted to determine whether a patent could be granted. This would secure access to the Patent Box, and lock in potentially significant corporation tax savings.
In addition, the 10% rate of corporation tax of is potentially applicable to a large product which houses a component which represents only a small proportion of the entire item. For example, a small, patented component which is central to the entire unit’s operation, may qualify the whole item for the Patent Box.
Despite this, HMRC’s recently published statistics covering the 2020-21 tax year show that only 1,535 companies (projected figure) claimed Patent Box – a moderate 10% increase on the number of claimant companies in the 2019-20 period. The cost of Patent Box claims to the exchequer in 2021 was an estimated £1.2bn. This starkly contrasts with the number of companies claiming R&D tax relief. In the 2020-21 year, 89,300 companies claimed the relief at a total cost of £6.6bn.
If you or your company has a patent or an exclusive license on a patented product, a conversation with YesTax may be a worthwhile undertaking. If you are yet to secure a patent, but wish to explore the possibility of doing so, we can put you in touch with our trusted partner firms which can assist with patent applications.
YesTax. Positively Better.