By Baker Tilly
Largely because of its strong technology base and reliable legal infrastructure, the UK is the world leader in patented technologies, a position that the government is keen to reinforce with the introduction of a new 10% corporation tax rate on profits derived from patents and certain other intellectual property. This preferred rate which came into effect on April 1st 2013 compares very favourably with the current headline corporation tax rate of 23% and companies looking to take advantage of it can make more sense of what is a fairly complex set of rules by contacting the tax services department of leading accountants, Baker Tilly, one of the main contributors to the consultation process which led to the evolution of the Patent Box legislation and associated alterations to the R & D tax regime.
The tax services professionals at the firm are quick to emphasise that any savings resulting from the new Patent Box rules are independent of existing reliefs and credits available on qualifying R & D costs so that many companies will, in the right circumstances, be able to benefit from both the new 10% tax rate and the existing R & D tax regime.
These specialist providers of corporate tax services suggest that companies look at their existing products and technologies to check whether some or all of them are suitable for patenting at the UK Intellectual Property Office or at the European Patent Office. Even some improvements to existing technology could well qualify for patents.
The government is clearly hoping to attract more technological innovation to the UK since tax services professionals are keen to point out that the reduced 10% rate applies to total worldwide profits earned from patents already in existence or the subject of pending applications.
Neither does it matter how these patents are used. The tax services team state that Patent Box income may comprise licence and royalty fees, sales revenues from patented products or even products that include the patented item.
Where goods are produced which are not themselves patented but which rely on a patented process, then the tax services providers emphasise that companies can enjoy the 10% tax rate on those profits which can be attributed to a notional royalty pertaining to that part of the production process that is patented.
The same tax services experts state that, as the full Patent Box tax rate is gradually phased in, smaller companies with qualifying patent profits below a £1 million per annum threshold stand to enjoy annual tax savings worth up to £100,000 as the headline rate of corporation tax is due to fall to 20% in April next year. Larger enterprises with patent profits over and above this £1 million p.a. limit stand to enjoy the same margin of relief provided they are able and prepared to meet certain additional requirements that the tax services team will be able to elaborate on.
Those specialising in corporate tax services often get the impression that many companies are put off applying for patents on the basis that the whole process is vastly complicated and expensive. They are therefore happy to introduce lawyers familiar with the Patent Box who will be able to assess whether or not your patent applications will be successful and what the associated costs are likely to be.
The message from the tax services experts to companies is clear: It is in your interests to get as much of your technology patented as possible. Otherwise you could end up paying as much as double the rate of corporation tax than you need to.
To find out more about how your company can reduce it's tax bill with Baker Tilly, click here