Innovation could bring tax rewards

That’s the warning from Francesca Hutcheson, tax director at Dyke Yaxley Chartered Accountants in Shrewsbury and Telford.

“We’ve been working with businesses across the region to help them make the most of the UK Patent Box scheme as it’s generally a relief that is under-claimed. It is in fact a very generous tax relief that enables companies to pay a reduced rate of tax on profits generated from sales of patented inventions.”

Francesca said any company that held EU or UK patents – or any firm currently seeking Intellectual Property protection for innovative products and processes – may be eligible for the relief.

“If your company qualifies, you would be able to benefit from a lower rate of 10 per cent Corporation Tax on the relevant income streams, compared to the current main rate of 19 per cent.

“And with the main rate set to increase to 25 per cent from April 2023, we expect to see a rise in the number of companies electing into the Patent Box regime as they begin to take a more holistic approach to their tax and Intellectual Property strategies.”

Francesca said the R&D tax relief scheme and the Patent Box regime had both been introduced to encourage and support innovation in the UK.

“But while R&D tax relief is widely known and claimed by many businesses, Patent Box is generally less well-known and easily overlooked, partly we suspect due to its complexity.”

R&D tax relief is driven by the costs incurred by the business, while the Patent Box regime focuses on the subsequent sales of the innovative products.

“In order to calculate the Patent Box relief that may be available, companies are required to carry out a complicated, multi-step review of their financial transactions.

“Patent and non-patent profits are separated and taxed at different rates, and detailed calculations must be done to identify and set out the relevant profits under each heading,” said Francesca.

“Your company must submit a written claim to benefit from the relief, even if the patent application is in process but has not yet been granted.

“Our specialist Innovation Tax team has wide-ranging knowledge and experience of Patent Box claims and we can help you to assess whether you are likely to qualify for the relief, as well as assisting with the detailed calculations that will need to be done.”