In our previous article we outlined the new Patent Box rules which are due to come into force from 1 July 2016. In this article, we consider the specific impact of these new rules on UK companies making Patent Box claims in respect of qualifying Intellectual Property.
As summarised previously, the key change in respect of these new rules is that profits which can be included in the Patent Box will be calculated using a “nexus” fraction, which reflects the amount of R&D that has been done by the company to bring the Intellectual Property into existence.
In practice, this means that standalone companies that undertake their own R&D and generate their own Intellectual Property should see no real difference in the benefit from the Patent Box. However, there are a number of scenarios which could see the benefit reduce significantly compared to the old rules. These include:
- companies that acquire Intellectual Property rather than developing it
- groups which undertake their own R&D but hold the associated IP in a different group company (e.g. where they have an Intellectual Property (IP) holding company)
Groups should therefore consider their Intellectual Property holding structure in order to ensure the Patent Box relief is not jeopardised under the new rules.
As well as considering the Intellectual Property ownership structure, companies will also be required to meet an increased administrative burden under the new rules. From 1 July 2016, in order for companies to benefit from the Patent Box they will need to track the amount of R&D expenditure incurred to bring each IP asset into existence. This is the case irrespective of whether the claim is made under the new or old rules (which are still available until 2021 to companies that have already elected into the regime). This places an increased administrative burden on companies wishing to claim the Patent Box, and closely aligns the relief to that of R&D tax credits.
These new rules have made Patent Box relief increasingly more complicated to claim. Our Innovation Taxes Group have a wealth of experience in advising companies make R&D and patent box claims, and are able to provide a holistic, coordinated approach to R&D and Patent Box claims.
If you would like to understand more about what this means for your business or to arrange your free consultation, please don’t hesitate to contact a member of our team.
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David Robinson
As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.
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