Do you fancy paying 10% tax? – Patent box proposals published

Do you fancy paying 10% tax?

Assuming the answer is “yes” then there are two options. You could move to Hong Kong, or you could investigate the new “patent box” tax proposal from the UK Government.

Before you get too excited the patent box proposal is only at consultation stage, and is unlikely to become law before 1 April 2013.

However, if it becomes law then it will provide significant tax breaks for businesses that have patent based income. Here is a link to the consultation paper.

From my perspective here are the key points:

  • It applies to patent protection and plant breeders’ rights (a fairly obscure IPR), but not to other forms of IP protection such as copyright.
  • The 10% tax doesn’t apply to turnover, or profit, but rather is restricted to profit that is derived from the relevant patent.
  • Profit derived from the patent means any profit over and above the “standard margin” of 15% (!!!!).
  • The proposed regime is separate from, and will be in addition to, the R&D tax credit scheme (which is already fairly widely used, and which is being expanded).

I think the proposals are good news for UK business, and are absolutely excellent news if you are a patent attorney or a tax accountant.

I know from talking to SMEs that many doubt the value of patent protection.  The theory is that a patent gives you a monopoly over your invention for about 20 years. However, they are becoming increasingly the domain of huge corporations because it can be hard (expensive) to enforce your patent, and conversely quite easy for somebody who is throwing enough money at the litigation to burst your patent. Hopefully the patent box will make patents a more obviously worthwhile investment for SMEs.

So what do you do now?

The consultation document is a fairly difficult read, and unless you are a in technology heavy industry, or an accountant, I suggest you don’t wade in right now.

Brodies (meaning me) is responding on a few of its questions.

So the short answer is “Watch this space”. We will write updates on the patent box when the proposals are more mature.

In the meantime dream of 10% tax.


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