Patent Box rules complex and potentially misleading, survey finds.

Posted on 22 May 2012

The majority of accountants (55%) believe that the proposed rules for calculating the reduced tax liability that will apply under the incoming Patent Box legislation could lead some businesses to expect more of a reduction in the coming tax year than they will actually get.

The survey of accountancy professionals was conducted by patent and trade mark attorney firm Withers & Rogers LLP.

From April 2013, any profits from inventions that are protected by a UK patent will be taxable at a significantly lower rate of Corporation Tax. However, the much-publicised rate of 10% will not actually apply until 2017. Instead, the actual tax rate that will apply to qualifying profits in the coming tax year will be 15.2%, which still compares favourably to the Corporation Tax rate of 23%. This is because the tax reduction will be tapered so the 10% rate will only apply to 60% of the qualifying profits in 2013-2014, rising to the full 100% of profits in 2017.

Overall, the survey revealed that the majority of accountants (98%) believe that the incoming Patent Box legislation will encourage businesses to invest more in UK-based research and development. However, 43% of respondents commented that a significant number of businesses are yet to make any preparation for the new legislation and are in danger of not being ready to take advantage of the lower rate from day one.

Adrian Tombling, patent attorney at Withers & Rogers, said: “There is considerable concern that the process by which the total qualifying profits are calculated, once all relevant deductions are applied, is excessively complicated and this could cause problems. It is possible that some businesses could end up paying more tax than needed if they don’t prepare now and some businesses may even be unaware that they could benefit at all.”

Commenting on the nature of the preparations that may be required Michael Jaeger, patent attorney at Withers & Rogers, added: “For some businesses, only an element of their profits will be eligible for Patent Box relief through the exploitation of patented technology, with the remainder susceptible to the full rate of corporation tax. It is therefore vital that companies track their patented and non-patented sales separately from the beginning of April 2013 so as not to lose any eligible profits.”

The survey also revealed that 70% of respondents said that UK businesses do not give sufficient attention to protecting intellectual property.