The Government has published consultation documents on the Patent Box and R&D tax credits as part of its plans to make the UK’s tax system more competitive for business.
The Patent Box will apply a 10% corporation tax rate to profits attributed to patents from April 2013. This is rather than the 24% corporate tax rate that will then be in force. The document, published last week, consults on detailed proposals for the Patent Box’s implementation, and gives more information about which patents and associated intellectual property types and what income will be eligible.
Carmen Aquerreta, tax partner in the R&D and Patent Box team at Deloitte, described the changes as “sensible” but says further work is needed to simplify the process of calculating patent income. “The new regime will apply to the slice of income attributable to the invention – not the entire profit from product sales – and will only apply where companies are actively involved in the patent development cycle,” said Aquerreta.
“We like the fact that income earned in the UK from worldwide product sales is included, provided that the product includes an invention covered by a UK or European Patent Office patent. We also very much welcome the news that income from the sale of a patent will fall within the regime. That will be particularly helpful to the biotech sector, which had largely written off the patent box as irrelevant to their business model.”
“Companies that assume UK Patent Box will not apply to them should re-consider,” said Aquerreta. “It’s actually easier to list the types of industries that wouldn’t potentially qualify. It’s time for companies to think inside the Box.”
The proposals published in the R&D tax credits consultation will further simplify the scheme by, among other things, changing the rules to extend the credit so that the costs of more contract workers qualify. The Government is also to pilot a process that will allow small companies and start-ups to find out what projects will qualify for the credit at an early stage in their development to assist in planning. The Government would like to explore further with companies the evidence base for moving to an ‘above the line’ credit.
David Gauke, Exchequer Secretary to the Treasury, said: “This Government is committed to putting in place the most competitive tax system in the G20 and we particularly want to make the UK an attractive location for innovative industries. The Patent Box and R&D credits help us create the best possible environment for this. We welcome responses to both of these consultations from industry and from tax professionals.”
Through both of these measures, the Government aims to support innovation and productivity in the UK and allow companies which further these to prosper. With the Patent Box, the Government aims to provide an incentive for companies in the UK to retain and commercialise existing patents and to develop new innovative patented products. This will encourage groups to locate the high-value jobs associated with the development, manufacture, and exploitation of patents in the UK; and maintain the UK’s position as a world leader in patented technologies.
The R&D tax credits consultation document also includes the Government’s response to its previous consultation on R&D credits, the submissions to which were considered by the Government when putting together the measures announced at Budget.