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4 November, 2014

It has been just over a year and a half since Patent Box was first implemented in the UK. The purpose of the scheme is to incentivise UK based innovation by providing a reduced level of corporation tax for UK companies involved in patented technology.

Since the inception of the Patent Box scheme, the use by companies of schemes for shifting profits from one jurisdiction to another has come under increasing political and media scrutiny. Concerns have been raised that Patent Box schemes, such as the UK’s, may be encouraging profit shifting by companies. In light of these concerns, the UK Government has been in discussions regarding whether changes should be made to the Patent Box scheme currently in force. As a result of this review, it has just been announced that the current UK scheme will be wound up in favour of a new scheme (still to be called Patent Box) having more stringent qualifying criteria.

At this stage, the details of the new scheme are not known, although it is understood that there will be restrictions so that the amount of the tax benefit that can be claimed will be linked to the amount of R&D Expenditure actually undertaken in the UK.

The changes to the qualifying criteria are most likely to affect multi-national companies with R&D efforts outside the UK. It is to be hoped that UK companies whose R&D is largely or wholly based in the UK will be largely unaffected by the new qualifying criteria proposed.

It has already been agreed that relief under the existing Patent Box scheme will no longer be possible beyond June 2021, with new entrants precluded from registering under the scheme beyond June 2016. Those already benefiting from the current Patent Box scheme will be able to continue to use the scheme until June 2021.

Since it is not clear when the new Patent Box scheme will come into force, and given the more stringent qualifying criteria likely to be applied, it is recommended that clients considering making use of the Patent Box review as a matter of urgency should assess their options.

For further information on the proposed changes to Patent Box, please contact either Neil Thomson or William Burrell.