Survey points to complexities of current Patent Box rules

From April 2013, any profits from inventions that are protected by a UK patent will be taxable at a significantly lower rate of Corporation Tax.

However, the rate of 10 per cent will not actually apply until 2017. Instead, the actual tax rate that will apply to qualifying profits in the coming tax year will be 15.2 per cent, which still compares favourably to the Corporation Tax rate of 23 per cent.

According to Withers & Rogers, this is because the tax reduction will be tapered so the 10 per cent rate will only apply to 60 per cent of the qualifying profits in 2013–2014, rising to the full 100 per cent of profits in 2017.

Overall, the survey revealed that 98 per cent majority of accountants believe that the incoming Patent Box legislation will encourage businesses to invest more in UK-based research and development.

However, 43 per cent of respondents commented that a significant number of businesses are yet to make any preparation for the new legislation and are in danger of not being ready to take advantage of the lower rate from day one.

Adrian Tombling, patent attorney at Withers & Rogers, said: ‘The accountants we have been speaking to are extremely positive about the Patent Box and believe it will help drive financial recovery, enhance global competitiveness and encourage inward investment and growth.

‘There is considerable concern, however, that the process by which the total qualifying profits are calculated, once all relevant deductions are applied, is excessively complicated and this could cause problems.

‘It is possible that some businesses could end up paying more tax than needed if they don’t prepare now and some businesses may even be unaware that they could benefit at all.’

Commenting on the nature of the preparations that may be required, Michael Jaeger, patent attorney at Withers & Rogers, said: ‘For some businesses, only an element of their profits will be eligible for Patent Box relief through the exploitation of patented technology, with the remainder susceptible to the full rate of corporation tax.

‘It is therefore vital that companies track their patented and non-patented sales separately from the beginning of April 2013 so as not to lose any eligible profits. It is recommended that accounts departments engage in a suitable dialogue with their sales teams and R&D departments in order to fully understand the extent of the tax break.’

The survey also revealed that 70 per cent of respondents said that UK businesses do not give sufficient attention to protecting intellectual property (IP), of which 35 per cent believed that it was because the value of IP is not fully understood.

Tombling added: ‘Developing a patent portfolio for a business can support its expansion and mobility into new markets. Patents also provide monopoly rights in a chosen geographic territory and can generate value and income through licensing agreements. This is entirely beneficial to promoting financial stability and competitiveness within UK businesses, and supporting ongoing job creation.’