UK Patent Box for IP Holding Companies

From the 1st April 2013 the UK Government is offering a tax break for patent owners and Intellectual Property (IP) holders in a effort to encourage businesses to move to the UK. This so called Patent Box will reduce the rate of corporation tax payable on profits from patents and some other forms of IP.

While large IT companies like IBM and Apple have extensive patent portfolios, and may actively pursue patent acquisition as a potential revenue stream, the proposed patent box may provide a significant boost to acquisition. The proposal will apply to patent holding companies based in the UK, not just UK companies developing technology.

HM Treasury state

The Patent Box will encourage companies to locate the high-value jobs and activity associated with the development, manufacture and exploitation of patents in the UK. It will also enhance the competitiveness of the UK tax system for high-tech companies that obtain profits from patents.

Bizarrely, profits from providing software as a service will not be entitled to benefit from the reduced tax rate. That is profits from the sale of services which owe some of their value to a patented innovation. This could cause some anomalies, for example in relation to a software application which has a patented element; if the application is sold on a disk this would qualify under the Patent Box regime, but the same application provided say as a service from the cloud would not qualify.

It is suggested that companies may elect for a notional royalty to apply in this case, so we will probably be hearing more about this in the near future.

Patent Box Links and Resources

  • HM Treasury: Patent Box
  • HMRC The Patent Box: Technical Note and Guide to the Finance Bill 2012 clauses