Patent Box claims increase (but not by much…)

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HM Revenue & Customs (‘HMRC’) has released its latest statistics for Patent Box claims filed in the year 2016-17. The HMRC report was issued in October 2019 and you can download the full version of the report here but here are the key findings:

Patent Box Key Statistics (2016-17)

  • 1,170 companies claimed relief under the Patent Box
  • the total value of patent box relief claimed was £1,035million
  • 31% of the claimant companies were classified as ‘Large’ but these companies accounted for 95% of all relief claimed
  • 55% of the claimant companies were in the Manufacturing sector (including pharmaceuticals)
  • Highest number of claims were in the South East (17%)
  • Lowest number of claims were in the North East (3%)
  • 51% of the total relief was claimed by London registered companies

What can we learn from these latest HMRC statistics?

The key figure that leaps out is just how few Patent Box claims are filed across the UK.

A little over 1,000 claims in total. This figure is tiny.

Early indications for the 2017-18 year do not show a significant uptick in claims with a little over 1,120 claims filed at the time of publication of the report (Oct 2019).

Common obstacles to UK companies filing Patent Box claims

Lack of awareness

Lack of awareness is a common reason for many companies failing to prepare and file a claim – especially for smaller companies.

Although the R&D tax credit relief has seen a significant increase in claims since its introduction in 2000, the uptake of Patent Box claims has been much slower. Having said that, it was not introduced until 2013 and therefore, it is still relatively new compared to the R&D tax relief.

Having said that, you would expect that more companies that are successfully filing R&D claims would also be made aware of the Patent Box relief and file claims for this UK government tax incentive too. Maybe too few professional advisors are aware of this relief as it is more technical in terms of the preparation and calculation of the relief claim (compared to the R&D tax relief).

Patent protection is not possible or commercially unattractive

It is beyond the scope of this article to explore the intricacies of exactly what inventions ‘can’ and ‘cannot’ be patented (plus we’re not ‘patent attorneys’ and so we stick to the ‘tax-stuff’!) suffice to say that software can be tricky to patent (in the UK). Whereas other entrepreneurs simply won’t want to disclose their underlying invention as required for the monopoly rights as granted under a patent registration – they want to keep their ‘secret sauce’, ….well….secret.

It is worth noting that the majority of R&D tax credit claims are filed by companies in the ICT sector (in which it is tough to secure patents); however, the manufacturing and engineering sectors are well represented in which you might expect to see more patents…

Tax profile of the company not beneficial for Patent Box e.g. tax losses

Although the R&D tax relief can benefit both loss-making and profitable companies, this is rarely the case for loss-making companies under the Patent Box tax relief.

This is because the Patent Box relief operates by applying a lower beneficial rate of corporation tax (at 10%) to taxable profits derived from the qualifying patent. So for stand-alone companies that are loss-making, this relief is ineffective.

The Patent Box tax relief is generous (so don’t miss out)

If you have yet to file your Patent Box tax relief claim and you are worried that you may have missed out; please rest assured that you can prepare and file retrospective claims for accounting periods ended in the past two years. So it may not be too late.

Similarly, if you are unsure how to proceed with your claim, please reach out for help: