Tax incentive for UK research activity

Originally announced by Alistair Darling in his pre-Budget statement in December 2009, the government has announced a consultation on the so-called ’Patent Box’, which could see royalties and other profits from patented products and technologies being taxed at the lower corporation tax rate of just 10 per cent. A consultation to review research and development tax incentives as a whole has also been promised.

If the plans go ahead, the 10 per cent tax rate will apply from 1 April 2013 and will be applied to patents first commercialised after 29 November 2010.

Adrian Tombling, patent attorney at Withers & Rogers, said: ’The lower rate of corporation tax is likely to be very attractive to all companies with a strong focus on research and development and this will help to secure inward investment in the UK.’

Tombling added that while it was unclear yet what type of patent-related income will qualify for the 10 per cent tax incentive, it is possible that it could extend to cover both royalty income and ’embedded’ income - other income from a product that can be attributed to the patent. It is also possible that the costs associated with obtaining patents could be brought within the research and development tax incentives scheme.

The decision to progress plans to introduce the Patent Box is the latest in a series of recent government announcements that will encourage companies in the UK to do more to protect their intellectual property.

’The recent changes to the Civil Procedure Rules, which took effect at the start of October 2010, make it easier for small- and medium-sized businesses to enforce their IP through the courts, without the risk of being left with a hefty bill for court costs. Cumulatively, the Patent Box regime and the Civil Procedure Rule changes will benefit a wide range of UK-based businesses,’ Tombling said.