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.
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.
- 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.
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.