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Patent - Overhead or Corporation Tax Reducer

Sunday 29 May, 2016

From April 2013, any profits from inventions that have licenced patents granted by either the UK Intellectual Property Office, the European Patent Office or specified EEA countries will be taxable at the reduced rate of corporation tax.

With the introduction of Patent Box tax relief companies have been able to elect for a reduced rate of Corporation Tax. The reduced rate is 10% which will be phased in gradually over a five-year period applying in full from 1 April 2017.

The 10% rate of Corporation Tax is applicable to products and services that incorporate patented inventions - the company must own, or has an exclusive licence under the patent and meets development requirements.

This piece of legislation is surprisingly generous, as it allows profits to qualify for the full reduced rate even if a patented part is integrated into a product. Therefore, the patent could be on a very small component that forms a much larger product. Furthermore, it's even possible to include profits from sold unpatented spares which are designed to be used with the patented product.

Making an application to benefit from patent box can either be made in writing, or through the company tax return.  The election needs to be made within two years after the end of the accounting period in which the relevant profits and income arose.

HMRC provide some guidance on their website,and the Exchequer Secretary David Gauke also gives his thoughts and explanation in this short video.

Have you been developing processes or products in your business? Would you like to take up the opportunity of paying Corporation Tax at a reduced rate? Our advisors can assist you with applying for the Patent Box relief and the patent itself if required.

If this is an opportunity you would like to discuss further, then please contact us on info@taxmatters.tax or call 01442 828006.