2023 tax rise makes patents more valuable

Innovating to improve your product range and keep up with competitors? Then it makes sense to use all the tax incentives available to you as corporation tax rises. The patent box scheme is one of the most attractive UK tax incentives and it is now closely aligned to R&D tax credits: you can get tax relief on developing your intellectual property and a lower rate of tax on the profits from exploiting it.

If you haven’t opted into the patent box scheme yet, it’s time to check how much it could benefit your business in 2023 and beyond.

The benefits

Profits that qualify for patent box relief are effectively taxed at as little as 10% compared to the main corporation tax rate of 25% from 2023. And you don’t need to patent a whole new product, even a small integral patent for one of your products will give access to the full benefits of the patent box regime.

The main criteria to access this valuable relief are that:

• You own or hold an exclusive licence over an EU or UK patent;
• The Company owning the patents also carried out the R&D that went into creating them; and
• You can track and trace the link between the R&D, patents and income generated by it.

Beyond that, the patent box calculation is largely formulaic, therefore once you have an information gathering process set up it can run smoothly for many years.

It is also possible to structure the group so that the IP company is ring-fenced from the main trading operations (thereby protecting it in the event of bankruptcy), but still qualifies for the effective 10% rate of corporation tax on the licence income it receives from the group’s trading entities.

Planning from the start

Most of the value of growing companies is based on their intangible assets – their brand and intellectual property. Businesses will go to huge lengths to protect their brand but those who also build an innovation strategy and invest in protecting their IP through patents are likely to see an even better and more secure return on their investment. Why not build on this and reduce the overall effective tax rate in a manner which is endorsed and encouraged by the UK Treasury – namely the patent box?

Take the first step

We work with businesses from start-ups to multinationals across a wide range of industries to help them realise the benefits of these tax incentives to help them grow. Please get in touch to discuss how we can help your business.