Patent Box: UK innovators are claiming more relief but there is still room for improvement, says Withers & Rogers
The value of claims for tax relief under the UK’s Patent Box regime increased in the 2016-17 fiscal year, indicating that industry awareness of this attractive incentive for companies investing in research & development, is on the up.
Data released by HM Revenue & Customs (HMRC) shows that 1,025 companies in the UK claimed £942.5 million in relief under the Patent Box regime in 2016-17, up from £754.3 million in the previous tax year, amounting to an increase of 25 percent. However, some of this increase may be accounted for by the phased increase in the amount of relief that businesses can claim. Also, as the latest figures for 2016-17 are incomplete, the overall amount of relief claimed and the total number of claimants could rise further.
Michael Jaeger, partner and patent attorney at intellectual property firm, Withers & Rogers, said:
“Since it was introduced in April 2013, the UK’s Patent Box regime has gained popularity and with claims in 2016-17 reaching almost £1bn, it is clearly having an impact and helping to encourage investment in innovation.
“However, closer analysis of the data shows some sectors of industry may not be using the Patent Box regime to the full and it remains important to spread the word about how the scheme can help to reduce corporation tax liabilities.
“According to HMRC’s data, manufacturers are making the most claims, followed by businesses in wholesale, retail and repair, but some other sectors are making fewer claims that we might expect to see. For example, only five companies in the financial and insurance sector claimed Patent Box relief in 2015-2016, which is disappointingly low given London’s reputation for fintech innovation. Businesses in other sectors, such as construction and transport, and clean tech may also be missing out on relief.
“The data from 2015-16 also shows that while small and medium-sized businesses represent 72 percent of those claiming tax relief under the Patent Box regime, the value of their claims is just 4.1 percent. Part of the reason for this could be the complexity of the regime and it is possible that more smaller firms could be participating in this scheme.
On 1 July 2016, the Patent Box regime was modified following criticism from other European Union member states that it created unfair levels of competition. However, the new regime has since been fully endorsed by the European Union. Michael Jaeger comments:
“It was been an eventful five years for the Patent Box regime in the UK and at one stage it looked like it might not survive. This just goes to show how important it is that innovative businesses make use it.
“While it is positive that the value of claims rose by 25 percent in 2016-17, the volume of claims is still disappointing, particularly when you compare it with the volume of claims for R&D tax relief.
“With the Autumn Budget nearing, there is an opportunity for the Chancellor to reassure entrepreneurial businesses that Patent Box is here to stay, and to greater encourage its uptake. This would provide greater certainty to businesses sponsoring innovation and seeking to profit from their patented inventions in the UK.”