Patent Box – tax savings on profits from patented inventions

What is the Patent Box?

Tax savings on profits from patented technologyThe UK Patent Box allows companies to apply a lower rate of UK Corporation Tax to profits related to their patents. The relief is currently being phased-in with the full benefit of 10% Corporation Tax being available from April 2017.

To qualify for Patent Box a company must have been involved with the development of the patent, or a product or process related to the patented invention, and must own or exclusively license the patent.

All granted UK and European patents, as well as patents from certain other countries in the European Economic Area, qualify for Patent Box regardless of when they were granted.

Qualifying income can arise from a number of sources including:

  • The sale of patented products or a product incorporating a patented invention including the sale of spare parts of such products even if the spare part itself is not patented.
  • Licence fees and royalties from a right granted over the patent.
  • Proceeds from the sale or exclusive licence of the patent.
  • Income received as compensation for patent infringement.
  • A notional royalty where a patented process or patented tool is used to generate profits that would not themselves qualify for the Patent Box relief.

Could Patent Box work for you?

Previously it may have been felt that it was not worth the expense of applying for a patent, especially if the product was likely to have a relatively short life span.

Depending on your current Corporation Tax liabilities, with the total cost for securing a direct UK patent typically being around £4000-£6000 + VAT, the Patent Box may make acquiring patent protection extremely cost effective.

The Patent Box also shifts the focus of patent protection away from trying to establish as broad a protection for the product as possible. A more narrow focus can make it easier to get a granted patent while still allowing a company to make a claim using the Patent Box.

However, potential users of the scheme need to bear in mind that a patent application must be filed before any public disclosure of the invention takes place. You cannot wait until you are sure you have a commercially successful product.

For more information and advice about patent protection, please contact Sanderson & Co.