Could your business pay less Corporation Tax?

Many UK businesses invest heavily in developing new products and technology, but many don't realise they could pay less Corporation Tax through the Patent Box scheme.

If your company owns a qualifying UK or European patent, or has a qualifying exclusive licence to use patented technology, you may be able to pay an effective corporation tax rate of just 10% on the profits linked to that innovation. Despite the potential savings, many eligible businesses never make a claim or assume the rules don't apply to them.

What is Patent Box tax relief?

Patent Box is a UK tax relief designed to encourage businesses to develop and keep valuable intellectual property in the UK. It rewards companies that turn innovation into commercial success by reducing the corporation tax paid on qualifying profits.

Rather than paying the company’s usual corporation tax rate,, eligible businesses can benefit from an effective rate of just 10% on profits linked to qualifying patents.

Who can claim Patent Box?

Many people think Patent Box only applies to pharmaceutical or large technology companies, but that's not the case. Manufacturers, engineering firms, software developers, medical device businesses, electronics companies and many other innovative businesses may qualify.

You don't have to sell a patented product for the relief to apply. If a product contains a patented component or uses a patented process, some of the profits may still qualify. Income from licensing patents, receiving royalties or certain compensation payments may also be eligible.

Why businesses miss out on Patent Box relief

One of the biggest reasons businesses miss out is because they assume they don't qualify. Some believe their profits aren't high enough, while others think the patent is too small a part of their business to make a difference. In reality, even a single patented feature within a larger product can open the door to Patent Box relief.

Another common issue is that calculating the qualifying profits can be more complicated than expected, particularly where only part of a product is covered by a patent. Businesses can also miss the deadlines for electing into the scheme, meaning valuable tax savings are lost.

Patent Box and R&D tax relief

Patent Box is often most effective when it's considered alongside other innovation tax reliefs. Many companies that have claimed research and development tax relief go on to qualify for Patent Box once their new products or technology begin generating income. Looking at both reliefs together can help maximise the tax benefits throughout the full life of an innovation.

Should you review your Patent Box eligibility?

Even if you've looked at Patent Box before and decided it wasn't suitable, it's worth reviewing your position from time to time. New patents, changes to your products or new commercial activities could mean your business now qualifies or is entitled to greater relief than before.

If your business owns patents, has patent applications in progress or develops innovative products or technology, reviewing your eligibility could be worthwhile. A Patent Box claim could reduce your corporation tax bill, improve cash flow and help you get a better return on the investment you've made in innovation.

If you’d like to understand whether your business could benefit from Patent Box relief, contact Monahans to find out how we can help.

Charlotte Parker