New HMRC stats show Patent Box is underclaimed

A series of recent announcements have shaken up the UK’s R&D Tax Relief scheme in a big way, with a new combined R&D Tax Relief scheme on the horizon and other changes to the claims process.

The Patent Box regime is another innovation incentive that is not discussed as often despite being incredibly useful to qualifying companies (offering an effective Corporation Tax rate of just 10% on profits from patented products or processes).

HMRC’s recent Patent Box findings

The lack of attention received by the generous Patent Box regime is evident in HMRC’s recent report from the 2021/22 tax year. The findings are not yet finalised, but paint a clear picture.

• Just 1,510 companies claimed through the Patent Box regime, a 6% reduction on the previous period.
• More than 97% of total relief claimed through the Patent Box was claimed by the top 275 of these companies.
• In addition, 94% of total relief claimed was claimed by ‘large’ companies (as classified by HMRC).
• Over half (920) of all claims were made by manufacturing companies and accounted for 44% of the total relief given.
• The overall value of reliefs claimed across the UK increased from £1,196 million to £1,363 million, which can be attributed to a more significant proportion of reliefs claimed by large companies.

Companies are missing out on Patent Box opportunities

These figures shared by HMRC appear to demonstrate a significant underclaiming from businesses in the UK. For context, the Intellectual Property Office have reported that there were circa 70,000 patents granted by the UK Intellectual Property Office between 2013 and 2022; however, there were only 1,510 companies that claimed in the period reported.

This indicates some disparity between the number of companies with Patents and those that claim. Even acknowledging that Individuals will own some of these patents, there will nonetheless be many eligible companies who hold patents and do not claim them.

With the recent increase in Corporation Tax rate to 25%, this is a significant tax planning opportunity being missed by companies at a time when it will be beneficial.

Did you know: You can combine Patent Box with R&D Tax Credits

R&D Tax Credits allow companies to save Corporation Tax worth around 21.5% of qualifying R&D spend. Combining this incentive with the Patent Box regime can provide extremely valuable relief if eligible.

• A company investing in an innovative new product may qualify for R&D Tax Relief.
• If this new product also contained patented technology, the company could make further tax savings through the Patent Box.