Patent Box

The new legislation, the Patent Box scheme commenced on the 1st of April 2013, designed to give incentives to domestic and foreign firms to innovate through R&D in the UK. The Patent box allows companies to invest in products whilst trying to obtain a patent and gain tax reliefs. The idea behind the new scheme is to maintain the UK’s position as the world leader of patented technologies (HMRC,2013). The objective is to allow those companies that receive patented technology a decreased rate of effective tax, as low as 10% in 2013 instead of the 23% all other companies are taxed at (Deloitte, 2013). This should encourage companies to invest in R&D in order to produce a product that is patentable with tax benefits; incentivising domestic companies to invest internally in R&D but also foreign companies coming to the UK to take advantage of this reduced level of taxation. To qualify for the benefit of the patent box, the UK owner or license holder must have had a substantial involvement in the development of the patent.One provision that is very attractive is that products that incorporate a patented items can claim the 10% rate hence if companies produce a large product with a very small patented item in it, all the profits on the item will qualify for this favourable rate for example a patentable chip inside of a phone.

B) Calculation and Simplicity

Shah (2013) states that not all company profit can be qualified as intellectual property (IP), it must come from at least one of the following: net selling patented profit, licensing out patented rights, selling patented rights and damage, insurance or other compensation related to patented rights. Then, the company will need to deduct a fixed percentage (10%) on certain items of expenditure as routine returns. After that, here comes the difficult part of the calculation. One of the rules is to deduct profits relating to a notional marketing royalty (NMR) from patent related profits. Take goodwill, a relevant...