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The latest set of annual statistics from HM Revenue and Customs (HMRC)
show that the number of companies elected into Patent Box
marginally increased in the tax year 2022 to 2023 compared with the
previous year (to 1,640 from 1,630 companies). This means that the
year on year increase in companies from tax year 2013 to 2014
continues, albeit more gradually from tax year 2017 to 2018. It is
also estimated that, in the tax year 2023 to 2024, the number of
companies will maintain this trend (i.e. 1,650 companies). Thus,
although the number of companies electing into Patent Box is
increasing, it is only by a relatively small number in recent
years.
UK Patent Box enables companies to apply a lower rate of
Corporation Tax (10%, as compared with a main rate of 25% from
financial year 2023 to 2024 onwards) in the UK to profits earned
after 1 April 2013 from qualifying patented inventions and
equivalent forms of intellectual property. This is designed to
encourage companies to keep and commercialise intellectual property
in the UK. See my previous article for more details.
It is projected that the value of relief claimed under the
Patent Box went up from £1,449 million in the tax year 2022
to 2023 to £1,977 million in the tax year 2023 to 2024. This
relatively large increase in value of relief in tax year 2023 to
2024 was driven by the change in the main rate of Corporation Tax
from 19% to 25% on 1 April 2023. In other words, the benefit per
claimant surged, but the number of claimants did not. This is
important as Patent Box can have a bigger impact on effective tax
rates (ETR) for companies in the regime.
As in previous years, large companies are claiming more tax
relief on average. It is estimated that 28% of companies were
classified as ‘Large’ and accounted for most of the relief
claimed (95%). Medium and small companies are estimated to make up
28% and 26% respectively of companies claiming relief in tax year
2023-2024 but only account for 5% of the relief claimed.
It will be interesting to see if these trends continue or if
more companies, especially SMEs, realise the benefit of claiming
Patent Box relief, particularly considering the increased reduction
in rate of Corporation Tax.
The statistics indicate that it is estimated that only 65
companies (4% of total) in Scotland benefited from relief in tax
year 2023-2024 and it could be argued that this is a strikingly low
figure when set against Scotland’s strong innovation ecosystem.
However, it has to be recognised that the reported region is based
on addresses given to HMRC for tax purposes, e.g. a HQ in London,
which may not be where the R&D or manufacturing occurs. So the
apparent low Scottish count may be partly a reporting artefact, but
it appears to not be entirely due to this. Thus, since Scotland
consistently punches above its weight in R&D activity and
university‑driven innovation, it appears that there may be a
relatively lower Patent Box uptake in this region and there may be
opportunities for more Scottish based companies to benefit
financially from this tax relief.
A few questions that these companies could ask themselves is
“Can we identify any patentable technologies or processes
that have not yet been protected?”, “Do we have
(or expect to have) a granted patent or qualifying IP?”
and “Are we generating (or will we soon generate) profits
from the patented product/process?” If the answer to any
of these questions is “YES!” then electing into the
Patent Box should be considered if it has not already been
done.
It is important to appreciate that, when a closer look is taken
at a company’s product development, there is often patentable
technologies and processes that they have not yet protected. The
bar to obtaining a granted patent is often lower than may be
considered by a company who are just carrying out “business as
usual”. For example, a small new tweak in a long standing
product or process may be patentable, e.g. if it solves a problem
or has some advantage and is non-obvious.
For more information on how we can help to protect your
Intellectual Property and derive further benefits from doing so,
please get in touch.
The number of companies receiving relief varies significantly
across UK regions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.