Patent Box has always been an underclaimed relief but new data suggests that uptake is rising.
In the tax year 2019/20, 1,395 companies made Patent Box claims, but projections recently published by HMRC suggest this will have increased by 10% in 2020/21 to 1,5351.
Any increase is good news, but lack of awareness and the relief’s complexity mean the claimant count is still too low.
Consider that in 2020/21, 89,300 claims were made for R&D tax relief2. Many of those companies conducting R&D will have been eligible for a patent, yet did not file one due to the cost and time involved.
This has big financial implications — those companies are missing out on nearly halving their tax bill, potentially recouping the patent costs many times over. The relief would also have been available while the patent was pending (the relief is rolled up during the pending period and claimed once the patent is granted).
Business of all shapes and sizes
The good news is that take-up of Patent Box is spread out across companies of all sizes.
While the most recent data from 2019/20 shows 28% of claims made were by large companies with more than 250 employees, a quarter (25%) of claims came from medium-sized firms, 25% from small firms and 21% from micro companies with fewer than 10 employees.
Overwhelmingly, the manufacturing industry made the most claims, representing over half (53%) of the total. The wholesale and retail sector is next with a fifth (20%) of claims, followed by the professional, scientific and technical sector with 12%.
Location, location, location
Companies from all over the UK are claiming for Patent Box, with the biggest number coming from the South East, representing 16% of the total. In 2019/20, London-registered companies made 9% of claims, yet received £555 million in total — 46% of the amount of total relief claimed.
The London figures are skewed by the fact that a very high number of companies are registered in the capital, even if they have a big presence around the rest of the country.
It is projected that London will claim 50% of the total amount in 2020/21, at an estimated £602million.
The North East made the fewest claims in 2019/20, with just 2% of the total.
Advice is crucial
If a 10% rise in Patent Box claims bears out, it will be a big improvement on 2019/20, but so many eligible companies are still missing out.
This is despite Patent Box coming with big rewards. It nearly halves the rate of Corporation Tax by reducing profits derived from patented products and processes to an effective 10% tax rate compared to 19%. If the increase in Corporation Tax rate to 25% goes ahead in April 2023, for companies with profits in excess of £1/4million, the savings will be even greater for these companies.
Patent Box is complex, and getting good advice from the outset is critical. For example, patents must be placed in a company’s name rather than an individual’s in order to qualify for the relief.
However, far more companies should be making patents and the Patent Box an essential part of their R&D strategy. If HMRC is correct in its forecast then the message may finally be getting through, and we can look forward to this kind of growth every year.