James Tetley

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James Tetley

Partner

Is Patent Box supporting all levels of business?

New statistics released by HMRC have revealed a steady increase in the number of claims for Patent Box tax relief but generating much greater value for claimants since the previous year. Whilst the number of companies making claims only increased by 2 per cent between 2014-15 and 2015-16, the value of relief generated rose sharply from £651m to £754m.

Early indications suggest that this pattern will continue into 2016-17 with 1,025 claims filed to date generating £942m in relief.

First introduced in 2013, the Patent Box enables companies to apply a lower (reducing to as little as 10 per cent) rate of corporation tax to profits arising from patented products and equivalent forms of intellectual property. It is also seen as a complementary relief to the UK Research & Development (R&D) tax relief regime in supporting the development and commercialisation of intellectual property in the UK. 

It’s encouraging to see an uplift in claims which is unlocking greater levels of relief  year-on-year. However, the statistics show an interesting split in which companies benefit most from the relief, with only 25 per cent of total claims being made by large companies that benefit from 95 per cent of total relief delivered, whilst SMEs and micro entities accounted for 75 per cent of claims but only 5 per cent of the value.

Unsurprisingly, the sector that benefitted most from the relief was manufacturing, with just over 50 per cent of claims made and just under 50 per cent of the total value received. The proportions across both sector and size of company claiming the relief has remained broadly consistent over the past two years. 

These statistics certainly bear out what we see in practice, with large companies being better equipped to wade through the complexity of the Patent Box regime to make claims, and to ensure that their systems are geared towards accurate reporting for these purposes. 

It is also interesting to see how the statistics compare year-on-year with those for R&D tax relief. Whilst the uptake for R&D tax relief increases exponentially year-on-year, the uptake for companies claiming Patent Box appears to be beginning to plateau, which could be due to the larger businesses particularly manufacturers (which incorporates pharmaceuticals) being the ones to benefit most, whilst smaller businesses are less inclined to progress complex claims for lower values.

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