Rebecca McColl, Tax Senior Manager at Johnston Carmichael, explains what Patent Box Relief entails and what it means for the nation’s tech businesses…
Patent Box relief is a valuable tax incentive available to companies that generate profits from qualifying intellectual property (IP) rights.
The scheme allows businesses to apply a reduced Corporation Tax rate on profits earned from qualifying patents and other forms of IP.
This relief can provide significant financial benefits, enabling companies to reinvest in further innovation and strengthen their competitive position in the market.
What is Patent Box Relief?
The relief incentivises businesses to retain and commercialise their IP within the UK.
For tech companies, this can include a wide range of patented innovations, such as software solutions, hardware designs, artificial intelligence (AI), machine learning models, and cyber security technologies.
By taking advantage of this scheme, businesses can reduce their tax liability, freeing up funds for reinvestment.
Benefits of Patent Box Relief for Tech Companies
- Lower Tax Burden – Lowering the tax rate on qualifying profits, businesses can retain more of their earnings, making it easier to fund future innovation and growth.
- Encouraging Innovation – Providing financial incentives for companies that invest in the development of new technologies.
- Global Competitiveness – Helping to ensure that companies do not seek to move their IP holdings to jurisdictions with lower tax rates.
Common Challenges for Tech Companies
- The application process can be complex, particularly for tech companies that may have multiple qualifying IP rights. Companies must accurately track income and expenditure related to the relevant IP rights, as well as the associated R&D expenditure incurred in developing them.
- Detailed record-keeping is required to claim the relief. This includes documenting R&D expenditures, IP-related profits, and how the company’s technology is being commercialised.
How to maximise patent box benefits
Tech companies looking to maximise the benefits of the Patent Box should consider the following strategies:
- Conduct a thorough review of their IP portfolio to identify which income is eligible for relief.
- Keep detailed records of R&D expenditures related to each IP right to help maximise the claim.
- Consult with relevant tax and IP specialists who can help navigate the application process and maximise financial benefits.
Next Steps
Patent Box relief provides a significant opportunity for tech companies to reduce their tax liabilities while supporting innovation and development. Leveraging this relief can free up resources to fuel further technological advancements, and by taking full advantage of the scheme, tech companies can strengthen their financial position and remain competitive on a global scale.
If you would like to discuss Patent Box in more detail, why not contact Rebecca McColl for a Dynamo exclusive, free, no obligation 30-minute introductory conversation? Email: rebecca.mccoll@jcca.co.uk.
