Patent Box tax saving opportunities
Last year the Patent Box regime saved businesses £875m in corporation tax, a 17% increase in savings from the previous year. But could the tax breaks become even more attractive post-Brexit?
The Patent Box regime, introduced to encourage UK businesses to invest in research and development (R&D), allows businesses to pay a substantially reduced corporation tax rate of 10% on all profits derived from any UK or certain EU patents and patented products.
The regime that was initially introduced in 2013 received objections from some EU member states that it did not comply with state aid rules. As a result, the EU enforced changes that came into effect on 1 July 2016.
Those already using the 2013 regime can continue to do so until June 2021. However, those entering the scheme after the 1 July 2016 are required to adopt the new, less favourable, regime.
Post Brexit opportunities
The current legislation for R&D and Patent Box continue to apply with no reliance on the UK being part of the EU, so it is under no threat from Brexit. However, the government will now have the opportunity to remove the July 2016 changes to make the regime more attractive after we officially exit from the EU. The exit will also present an opportunity to introduce similar tax breaks to further incentivise UK businesses to invest in R&D, thus helping the UK to maintain its position as a hub of innovation post-Brexit.
By introducing a more attractive UK Patent Box, it is thought that European companies will be encouraged to move R&D jobs into the UK, increasing employment and consequently leading to higher tax receipts through PAYE and NIC.
There will also be the opportunity for the government to simplify the application process and reduce the requirements to qualify, which were complicated by the 2016 changes.
Ultimately the post-Brexit outlook for innovators is positive.
To find out more about making the most of the Patent Box regime and/or the R&D relief and tax credits, contact Victoria Nicoll