Partner Article

Don't be foolish: Reduce your tax from April

Sylvia Spencer, Partner at Russell New, explains how companies can take advantage of a new Intellectual Property Rights scheme from April 2013

An opportunity presents itself to UK companies from April 1st 2013; one which can lead to increased profitability from patented products if they take advantage of a new generous tax relief introduced to all companies that receive income from certain patented or certificated intellectual property (IP). This new tax regime, labelled The Patent Box, will enable companies to apply for a 10% corporation tax rate to profits attributed to patents and IP. With the mainstream corporation tax rate of 23%, which will become 22% a year later in April 2014, this is a very significant saving.

Background

This new tax regime has been designed to provide incentives to UK companies to maintain their existing IP. The UK Government hopes this new initiative will help to achieve sustainable private sector growth and encourage companies of all shapes and sizes to, and in the words of HMRC, “locate the high-value jobs associated with the development, manufacture and exploitation of patents in the UK and maintain the UK’s position as a world leader in patented technologies”. Strong and positive words.

This is also in addition to the enhanced relief available for certain research & development (R&D) expenditure, so companies will be able to benefit from both regimes, if the requirements are met.

However, this relief is not automatic; an election must be made after 1 April 2013 to join the new regime and before relevant income is received. . The relief is being phased in over a period of time with full relief applying from April 2017.

The election process

To secure the new reduced corporation tax relief on income from qualifying patents any company that meets the requirements must write to HMRC on or before the last day on which the company can amend its tax return for that accounting period. The election has effect for all subsequent accounting periods of the company until HMRC receives written revocation of the election. It is worth noting that once a company revokes its election, it is prevented from re-electing into the regime for a five-year period.

With the introduction of this tax relief from 1 April 2013, companies considering electing in to the new regime should have already started preparation – however it isn’t too late.

Do I qualify for the relief?

Remember; this relief only applies to companies – so any sole traders or partnerships need to think about incorporating if they want to take advantage of it. Does your company hold patents granted by the UK IP Office or the European Union Office? Do you have patents pending? Does your company have an exclusive right to exploit a patent? These are all questions you must address.

A company must have also created, or made a significant contribution to the creation or development of, the protected item or a product or process incorporating it. Licensees of qualifying IP rights are also eligible for relief.

Companies will need to determine which of their IP rights qualify for the patent box and to identify their associated income and profits as defined under the regime. Where a company holds only a small number of qualifying IP rights, this process will be relatively undemanding. Where a company or group has a large portfolio, it may be more complicated.

This is an opportunity too good to miss for those who qualify; don’t let it pass you by.

For more information contact Sylvia Spencer at Russell New on 01903 816699 or visit www.russellnew.com

This was posted in Bdaily's Members' News section by Osprey PR .