The UK government has shown its commitment to driving innovation and investment, by way of its Spring Budget 2023 announcements and ongoing focus on strengthening the UK’s position as a global science superpower and innovation nation.
Tax relief has been a hot topic for a while now, and high on the government’s agenda has been an attempt to make the schemes more robust and ensure they’re being used correctly.
If your clients are innovative businesses, they should be made aware of the various tax relief schemes that are available from HMRC to help fund their future innovation and enable business growth. The Patent Box is one such scheme that is unfortunately underused by businesses that have a patented invention.
Let’s start by looking at what a patent is, before we cover the benefits of HMRC’s Patent Box tax relief scheme.
If a business wants an exclusive right for its invention, then yes. Filing for a patent will enable a business to make the choice as to whether its invention can be used by others.
Patented inventions generally are a product or a process that provide a new way of doing something or offer a new technical solution to a problem. It could be a minor technical improvement to an established product or process, for example. Many innovative projects, involving research and development (R&D), contain intellectual property that can be patented.
Despite the advantages of filing a patent, the UK is falling behind when it comes to the number of innovative businesses filing a patent, which could be restricting them from commercialising their intellectual property.
HMRC has numerous tax relief schemes available to innovative UK businesses, designed to encourage and incentivise companies to undertake innovation.
The Patent Box regime allows businesses to receive a lower effective corporation tax rate of 10% on profits earned from their patented inventions and certain other IP rights, for the lifetime of the patent.
Equally, if a business owns the licence to use others’ patented technology, it may also be able to benefit from the Patent Box reduced rate of corporation tax.
If you have a patented invention, then you will more than likely have undergone research and development (R&D) during the development of the product or process. Your business can claim R&D tax relief for the innovation demonstrated when developing the product or process and can then claim the Patent Box relief on top for any income derived from patents coming directly as a result of R&D.
The good news is that Patent Box claims can be made alongside R&D tax credits claims as the criteria for ‘innovation’ is very similar.
The tax savings can fund the next generation of research, to produce patented products.
Taking advantage of both tax relief schemes (the patent box and R&D tax credits) can significantly reduce your tax liabilities. Achieving a patent can be expensive for many innovative businesses, depending on the complexity of the invention and other factors. But the cost of obtaining a UK patent could easily be outweighed by the tax reduction from a Patent Box claim.
It is important that companies embarking on innovation understand the patent process and the associated tax reliefs, and receive specialist advice from the outset.
Taking advantage of HMRC’s Patent Box tax relief scheme can really strengthen a business’ growth strategy and ensure they’re receiving all the tax relief they’re eligible for. As an accountant, you can highlight to your clients what the scheme is and how it works.
If you have a client that is embarking on patenting an invention or already holds a patent, Catax can support you in ensuring that they are making the most of their patents by utilising the Patent Box tax relief. What’s more, you can receive an additional income for every successful introduction!
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