UK Tax Break on Profits from Patented Products

This blog was written by Roy Rosser, Ph.D., Patent Agent at Gearhart Law

A Patent Box? I thought life was meant to be like a Box of Chocolates?

Thanks to Skype, it’s now possible to make virtual visits to foreign cities.  On one such recent adventure, I discovered that all London is agog about “The Patent Box”.  At least the Intellectual Property community in London is.  This isn’t a new Gilbert and Sullivan operetta – or even an Andrew Lloyd Webber musical. It’s simply a box on a UK tax form, and the question is: “To tick or not to tick?” (Shakespeare’s Hamlet had a similar dilemma, if my memory of Cliff’s notes serves me correctly). At least, that’s the question in the mind of the person filling in the form.

The core idea of the Patent Box is that all corporate profits attributable to a qualifying patented product will only be taxed at 10% – i.e., less than half of the already generous 24% corporate tax rate. And it’s what the British are calling a “spark plug tax”. That is, if you have a qualifying patent on a spark plug, profits on the entire car that incorporates the patented spark plug are eligible for the 10% tax rate.

A qualifying patent is one issued by the EU or UK patent office that the company owns or has an exclusive license to, and the patented product was developed or is made by the company.

One possible consequence is that British companies will be much more willing to license patents.

However, to obtain the full benefit of the “Patent Box” from Her Majesty’s Revenue & Customs, you would need to set up a British based company – and to deal with all the attendant language problems. Bonnets on cars, rubbers that turn out to be erasers, and serviettes that aren’t mini servants but dinner napkins.

If Ambien is no longer getting you to sleep at night, you can visit the official HM Revenue & Customs website for all the excruciating detail of the Patent Box: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD201010.htm

For a less soporific account, simply contact us at info@gearhartlaw.com.   A third option is to read Oury lark’s guide at http://www.ouryclark.com/guides/corporation-tax-patent-box-regime .   Oury Clark is unusual in that it is a UK based company that combines Solicitors with Chartered Accounting, and, therefore, has unique insights into business operations.

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