The new Patent Box legislation – which aims to boost innovation in the UK by offering incentives to firms to find and retain intellectual property within the country – could help to lower the burden of corporation tax for SMEs.
While corporation tax rates for large companies are to be lowered to match the 20 per cent rate for profits that fall underneath the £300,000 bracket, the new legislation could also allow small and medium-sized firms (SMEs) to benefit. They will be entitled to claim a rate of just 10 per cent if the profits are generated from the use of patents that they own or have exclusive licence to exploit. These profits could come about as a result of royalties, licence fees or revenue from the sale of products which incorporate the patented component.
The Patent Box legislation – which is applicable to existing patents that have been granted by the UK Intellectual Property Office, the European Patent Office or other EEA State Patent Offices – is being implemented in stages over the course of four years, the first of which began in April of this year.
While the cost of obtaining a UK patent totals a few thousand pounds, far more than this amount could be saved by SMEs in tax as a result of the new legislation, as well as providing them with patent protection.
The Patent Box legislation will allow firms to start to accrue the benefits of the new rules from the day that the patent application is filed, and it will be received once the patent is granted.