Patent Box Regime
Ribchesters has tremendous recent success assisting clients with this lucrative tax incentive.
For background, the Patent Box regime is a Corporation Tax relief which gives a reduced rate of tax (10%) on income deriving from the commercial exploitation of patents.
Overview
The 10% rate applies to profits earned after 1 April 2013 from a company’s patented and other innovations. The relief is being phased in over four years, so full relief at 10% on all patent box profits will not apply until 2017.
Under the measures a company will qualify for relief if it:
- Owns patent licences in qualifying intellectual property (IP) rights, or
- Owns an exclusive licence in respect of those rights at any time during an accounting period.
Additionally, companies who are part of a group must meet an active ownership requirement. The definition of a group is wider than for group relief and includes associated companies.
Qualifying income
- Sale of patented items or those that incorporate a patent, such as the sale of spare parts
- Licenced-in patent rights.
- Compensation income from infringement of owned rights.
Excluded income
Routine profits are deducted from total profits to arrive at “qualifying residual profit”, in this step it is assumed that companies will achieve a cost plus 10% mark up on all their expenses.
Smaller companies (those with a qualifying residual profit of less than £1 million) may then deduct 25% for marketing asset return from residual profits. Larger companies wanting to deduct a lower rate must use a transfer pricing calculation to deduct a notional marketing royalty based on the price that a third party would pay to exploit the brand.
For more information or to discuss how this may apply to your company please do get in touch.