Businesses urged to “get to grips” with new Patent Box regime as grandfathering rules come to an end
Businesses are being urged to “get to grips” with new Patent Box rules or risk missing out on corporate tax relief.
The new guidance, published by the Institute of Chartered Accountants in England and Wales (ICAEW), comes after grandfathering rules for the original Patent Box regime came to an end last month.
Launched in 2013, the Patent Box scheme incentivises companies to keep and commercialise intellectual property in the UK by offering a lower rate of Corporation Tax (10 per cent) on profits generated from patented inventions.
After criticism that the regime could be abused, new rules were introduced from 2016 onwards. However, existing claimants were able to benefit from grandfathering provisions which remained under the “old regime” until 30 June 2021.
Now the deadline has passed, all claimants are required to comply with the “new regime”.
Under the new rules, claimant companies are required to track income, expenditure, and research and development (R&D) investment in “greater detail”.
The new regulations also apply a “nexus” principle. This requires an R&D fraction to be calculated for each type of intellectual property asset, product or product family to which relevant income is attributable. The R&D fraction links the beneficial rate on income from a qualifying IP right to the research and development expenditure incurred by the company. Benefits are restricted where a company incurs expenditure on acquiring the patents and where payments are made to connected parties for their R&D expenditure.
You have to make an election to benefit from the reduced rate of corporation tax that applies to Patent Box and timing of when the election is made is key.
To learn more about the Patent Box, please click here.
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