This is the fifth and final article in our series on Patent Box.
Can Patent Box be backdated?
A Patent Box claim can only be made once a patent is granted. The process for obtaining a granted patent typically takes around three to five years.
The good news, however, is that a retrospective Patent Box claim can be made up to six years prior to a qualifying patent being granted in respect of qualifying IP profits arising from the patent from the date of application for the patent 1.
What does a Patent Box calculation look like for accounting periods commencing on or after 1 April 2023?
Patent Box deduction = RP x (MR – IPR) / MR 2
RP = the Relevant Intellectual Property Profits (CIRD220000)
MR = the Main Rate of corporation tax (CTM01750 – Corporation Tax: rates of tax – HMRC internal manual – GOV.UK)
IPR = the 10% Intellectual Property Rate of corporation tax.
Example 1 – without using Patent Box
- The relevant IP profits (RP) for company A are £50,000.
- Tax payable = £50,000 x 25% = £12,500
Example 2 – using Patent Box
- The RP for company A is £50,000. The Patent Box deduction may therefore be:
- RP x (MR – IPR) / MR = 50,000 x (25-10) / 25 = £30,000
- Profits chargeable to corporation tax after Patent Box deduction = £50,000 – £30,000 =£20,000
- Tax payable = £20,000 x 25% = £5,000
- The use of Patent Box in example 2, therefore, results in a Corporation Tax reduction of £7,500 versus example 1.
How long do Patents last?
Subject to payment of renewal fees, a UK patent may last up to 20 years from the effective filing date of the patent 3.
Renewal fees for a UK patent are payable yearly and range from £70 (5th year) to £610 (20th year) 4.
How much profit needs to be made to cover my IP costs?
Assuming that the lifetime costs (e.g., 20 years) of a UK patent amount to £15,000, and that the MR and IPR remain the same, the RP required for a company over those 20 years is £100,000 (£5k per year). This does not include any other benefits of having a granted UK patent during this time such as the protection that it confers.
How can we help?
As specialists in patent drafting and prosecution, we can prepare and prosecute patent applications to help you attempt to take of advantage of Patent Box.
Please get in touch with Thomas Measures – Appleyard Lees or Paul Beynon – Appleyard Lees if you would like to discuss whether your organisation could make use of Patent Box.
References:
3 Section 25 UKPA 1977
