The Patent Box is shrinking, but there are still significant tax benefits that can be claimed both under the current regime and the more restricted modified regime that comes into force from 30 June 2016.
The Patent Box was first introduced in 2013 as one of a number of measures introduced to make the UK a more competitive place to do business. It promptly came under the spotlight of the OECD as a potentially harmful, anti-competitive tax practice. This resulted in a new ‘modified nexus’ approach being put forward by the UK and Germany and this has now been endorsed by the OECD and all G20 member countries.
Caroline Hunt, head of the Innovation Taxes Group at national audit, tax and advisory firm, Crowe Clark Whitehill says:
“The newness and complexities of the current regime and the uncertainty around the changes coming in next year has led to businesses being cautious about taking advantage of the generous tax benefits available and many businesses are missing out on these.
“Under the current regime, patent box profits are taxed at 12%, an impressive 8% discount on the main rate of corporation tax of 20% and the rate is gradually reducing and will be just 10% from 1 April 2017. The 10% rate is expected to remain under the new modified nexus approach but the intention is that there should be a link between the income eligible for the tax benefits and the R&D activities generating that income.
“We urge innovative companies not to ignore the opportunities under both the current regime and the more restricted modified nexus Patent Box regime. Businesses can still benefit greatly from patent box and should act now to maximise the tax benefits before these reduce.”