New corporation tax relief for businesses

The new Patent Box tax relief takes effect from 1 April 2013.

Patent Box will allow eligible companies which make profits from exploiting patented inventions – whether through royalties or as part of the sale price of products - to benefit from a 10% rate of corporation tax on the profits arising from qualifying patents and certain other intellectual property rights.

To be eligible for the relief, a company must either own a qualifying patent or license in a patent on an exclusive basis.  It must also have either developed or made a significant contribution to the creation of the patented invention, performed significant activity to develop the invention or an item protected by the patent, or made a significant contribution to the development of a product or process incorporating the patented item. Patents granted before 1 April 2013 may be eligible, but other forms of intellectual property such as trademarks or copyrights are not. A product which is already fully developed will not be eligible.

The regime will be phased in over four years, with the 10% rate applying to 60% of the qualifying profits in the first year.  This will rise by a further 10% each year, so that from April 2017, 100% of qualifying profits will be chargeable at the 10% rate.

This new tax relief will only be available to eligible companies which are liable to corporation tax, so will not apply to sole traders, partnerships or limited liability partnerships.

However, those who qualify should seek professional advice as soon as possible to ensure they are able to take full advantage of the maximum reliefs they are entitled to.

For further information, please contact Stuart Hinnigan.