A new tax relief will be phased in from April 2013, the “Patent Box”, a tax incentive designed to encourage UK companies to develop innovative products. HMRC have gone so far as to release a video on YouTube to explain the Patent Box, and will host a series of road shows to provide an overview.
The Patent Box will allow companies to apply a lower rate of Corporation Tax to profits earned after 1st April 2013 from patented inventions and certain other innovations.
To be eligible a company must own or exclusively licence-in patents granted by the UK Intellectual Property Office, the European Patent Office or patents granted by selected countries in the European Economic Area. US patents are not included.
The new scheme will certainly make companies take stock of what patents they currently hold, and potentially increase patent applications on existing technology.
According to David Gauke, Exchequer Secretary to the Treasury, the Patent Box will make the UK the best place in Europe to start, finance and develop a business. Innovative companies will be encouraged to retain and commercialise existing patents and have an incentive to develop new patentable technologies. Whether that happens remains to be seen. Critics have pointed out that patents are only a small fraction of intellectual property rights, and the Patent Box has been criticised for not being as competitive as other European schemes. The Netherlands for example broadened their Patent Box regime into a successful “Innovation Box”.
Although GSK did announce its £500 million investment in the UK on March 22nd, the day after the Government announced its Patent Box plans, there is a concern that the Patent Box will reward large companies like GSK rather than small ones, because small innovative companies taking a risk on new technologies and business models might not turn a profit in their initial years. No profit means no Corporation Tax is paid so no benefit from tax breaks. Clearly smaller innovative companies require investment too.
There is also a danger that having a patent and qualifying for the Patent Box could be seen as a means of discouraging innovation. If only one small part of a product is patented (for example a car or plane), revenues can still be claimed on the entire product. Where will the incentive be then to innovate further?
For further information please contact Andy Harris on 0131 226 8208