The Patent Box and R&D Tax Relief
Maximise the returns on your R&D with these tax relief schemes.
HMRC has recently published statistics on the number of companies claiming relief under the UK Patent Box scheme and the value of this relief from the 2013 to 2014 tax year to the 2018 to 2019 tax year, together with projected statistics for the 2019 to 2020 tax year. An impressive £1.1 billion relief was claimed in the tax year 2018 to 2019 across companies of all sizes. Perhaps predictably, large companies enjoyed the vast majority of the claimed relief, but the report clearly shows that there are a large number of smaller companies taking advantage of Patent Box which is great to see.
The UK Patent Box is a scheme that enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from qualifying patented inventions and equivalent forms of intellectual property. The relief was phased in from 1 April 2013 and the full benefit of the Patent Box has been available from 1 April 2017.
Beneficially, the Patent Box scheme allows a lower rate of Corporation Tax of 10% compared with the main rate of Corporation Tax, which has ranged from 23% in 2013 to 19% in the years since 2017.
The tax reduction applies to all worldwide profits which are directly attributable to patented products or processes. For example, the types of income which may be eligible for the tax relief are licensing or sale of patent rights, sales of a patented invention or products incorporating the patented invention, use of a patented invention in the company’s trade, and/or compensation for infringement of patents.
To qualify for the Patent Box, companies must own or hold an exclusive licence for a patent granted by the UK Intellectual Property Office, the European Patent Office or another approved office.
In addition, companies must have created the patented invention or significantly contributed towards the creation of the patented invention, the development of the patented invention, or the development of an item or process incorporating the invention. Further qualifying conditions may apply to groups of companies, for example, where one company is developing the intellectual property and another one owns and manages the portfolio.
It is not possible to claim a Patent Box benefit until a qualifying patent has been granted. However, once granted, relief can then be claimed for profits made up to six years prior to grant.
In tax year 2018 to 2019, 1,405 companies claimed relief under the Patent Box, and the total value of relief claimed was £1,129 million. So far in tax year 2019 to 2020, 1,160 companies have claimed relief under the Patent Box, with a total value of £1,031 million.
It is expected that in total 1,370 companies will claim relief for the tax year 2019 to 2020, with the total value of claims likely to be £1,175 million.
Since its introduction the value of relief has increased with that growth slowing in 2017 to 2018, which is the first year where the relief was fully phased in. Similarly, the number of groups claiming Patent Box relief has grown every year up until 2018 to 2019. From the partial data it is expected that the number of companies claiming relief will drop slightly in 2019 to 2020.
From the statistics of the tax year 2018 to 2019, it can be seen that large companies claim the majority of the relief with 92% of the relief claimed being attributable to them. However, only 28% of the companies claiming relief were classified as large. Therefore, it can be seen that a number of smaller companies are still making use of the scheme.
A similar trend is predicted for the tax year 2019 to 2020.
In tax year 2018 to 2019, 32% of the total amount claimed was from groups in the manufacturing sector. This is likely due to the fact that many companies who undertake research and development also manufacture and/or sell their products.
A slightly smaller proportion of the relief was claimed by groups in the ‘Professional, Scientific and Technical’ sector, with groups in this sector making up 26% of the total relief claimed in tax year 2018 to 2019.
A similar trend is expected for the tax year 2019 to 2020.
This data shows that your company does not need to be manufacturing and/or selling a product in order to still possibly benefit from tax relief.
In tax year 2018 to 2019, London-based companies claimed the largest amount of relief at a staggering 48%. This is projected to increase slightly to 50% for the tax year 2019 to 2020.
From the statistics, it can be seen that South East England claimed more Patent Box relief than any other region of the UK. This likely indicates that a larger number of companies are located in this area.
When analyzing the regional distribution of companies claiming Patent Box relief across the United Kingdom by percentage of total businesses, Northern Ireland was found to have a higher proportion of companies claiming Patent Box relief in that area than any other region. This would appear to indicate that a high proportion of companies in Northern Ireland are developing patented inventions.
Although the number of companies utilising the Patent Box scheme is increasing each year, there are many companies which could be benefiting from this tax relief but are not doing so. This may be due to lack of awareness or unfamiliarity and/or perceived complexity of the scheme.
If you think that your business could be eligible to claim for the Patent Box, there are a number of ways we can assist you, including:
If you think you have a new invention or development which could be protected by a patent, please contact us to arrange a free initial consultation.
For further advice on claiming patent box or R&D tax relief, speak to your accountant or get in touch and we can introduce you to accountants who specialise in this field.