Early but promising days for Patent Box tax relief

Now that the Patent Box has been around for over a year, more and more claims are starting to be prepared as accounting periods end and company accounts start to be prepared.  As much as an adviser can respond to HM Revenue and Customs consultations, read the legislation and speak to companies about their potential claims, actually preparing the claims is the best way to learn about the relief and I have learnt a huge amount in the last few months.

A quick summary for those who aren’t aware; the patent box is effectively a 10% rate of corporation tax for income from patents.  The lowest corporation tax rate is 20%, so this presents an extremely good tax saving for many companies.  The calculations are quite complex, so I won’t go into them in detail here.

A lot of the claims are as we expected.  The way the relief is being phased in, combined with only an element of an accounting period qualifying for the relief means that a lot of the early returns are relatively small.  However a few claims have been large and time and effort at the start on what might currently be a small claim will mostly save time in future when the claims become larger.

One way the claims are being phased in is that to balance HMRC’s books they are effectively gradually decreasing the rate of corporation tax to the 10% mark.  A company will have to apply a percentage to its profits from patents, so for 2013/14 you can only include 60% of your patent profits in the claim, this increases by 10% per annum finishing at 100% from 1 April 2017.

Secondly, only income from 1 April 2014 counts towards the relief so, for example, if a company has a July 2014 year end, only the last three months patent income will be included in a claim.

One way we increased this for a client is by opting for the ‘streaming’ route.  One of our clients with a September 2014 year end could only claim for six months, but by adopting the streaming rather than the standard calculation we increased their tax savings by almost nine times.  The standard calculation is prepared by apportioning the taxable profits relating to the patent income, but by opting to stream, you can accurately calculate the profits attributable to the patent.  Hence, if the patent income is more profitable than the company’s other income streams you can save a lot of money.  This is often the case because the patent income tends to come from more specialist higher profit areas.

Preparing the claims themselves has been extremely complex, but the more I have prepared the less complex they have become and I can really see some of my clients getting a large benefit from the claim even before it has been fully implemented.  The next few years will be interesting as me and other tax advisers have more discussions with HMRC about the claims.

For more information please visit http://www.armstrongwatson.co.uk/patent-box

Steven Holmes, Tax Consultant, Leeds

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter


Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575


Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW