Navigating the complexities of Patent Box claims: expert tips and pitfalls to avoid

Patent Box claims are a valuable opportunity to strengthen your business’s cash flow if you qualify – though navigating the process can sometimes be complex.  

This comprehensive guide will teach you expert strategies for navigating Patent Box claims, including key tips for maximising benefits and common pitfalls to avoid.  

Understanding Patent Box tax relief: A brief overview

To elevate your earnings with Patent Box tax relief, it’s crucial to have a thorough understanding of what the incentive is.

Patent Box is a tax relief scheme that reduces Corporate Tax on profits earned from patented products or processes to approximately 10%. It aims to incentivise investment towards innovation in the commercialisation of new products or processes.

Patent Box complements R&D tax relief which incentivises the research and development stages of the innovation process. But Patent Box rewards the patented final product, instead.

Eligibility criteria for Patent Box tax relief

In order to benefit from Patent Box tax relief, your company must qualify.

Your business must:

• Be liable for Corporation Tax
• Generate profit from patented inventions and own (or have exclusively licenced in) the patents or other qualifying IP
• Have undertaken qualifying development on the IP – having made a significant contribution to the research, creation or development of it

Potential benefits  

The most significant benefit of Patent Box tax relief is the opportunity to reduce Corporation Tax on qualifying IP income, allowing you to retain up to 15% more of your earnings. This additional capital can be reinvested into your business to fuel innovation, strengthen your competitive edge, or enhance dividends, making your company more attractive to investors.

Beyond financial gains, the Patent Box incentive can also elevate your company’s image and reputation. Having a patented product or process not only demonstrates your commitment to innovation but also makes your business more attractive to investors by ensuring your intellectual property is protected.

Common considerations in Patent Box claims

Patent Box claims can be complex to navigate, requiring careful preparation to maximise your chances of successfully obtaining relief.

Identify qualifying patents

Understanding which patents qualify is essential before dismissing any potential relief opportunities. Eligible patents must be registered with a recognised patent office, such as the UK Intellectual Property Office (UKIPO), the European Patent Office (EPO), or certain other qualifying patent authorities. However, patents registered exclusively in the United States do not qualify for Patent Box relief.

Importantly, Patent Box relief isn’t limited to tangible goods. Processes, technology, and software can also qualify. Even if only one element of a process or product is patented—provided it is an essential part—you can claim relief on the entire income derived from that product or service.

For businesses within a group structure, it’s crucial to ensure that exclusive rights to the patent are held by the company generating the profits. If a group company owns the IP, it can license it to the profit-generating company, but the license must be exclusive in at least one national territory to qualify for relief.

Calculating Relevant IP Income

To make a Patent Box claim, you must accurately calculate your relevant IP income, ensuring your claim is both precise and maximises the relief available.

Qualifying income includes:

• Royalties
• Patent sales
• Products and bespoke spare parts
• Milestone and license fees
• Damages for infringement
• Other compensation payments
• Intragroup sales are also included in the calculation, provided they relate to the patented IP

By understanding these considerations and ensuring proper preparation, businesses can effectively navigate the Patent Box claim process to unlock significant tax benefits.  

Expert tips for successful Patent Box claims

You’ll want a strong Patent Box tax claim to heighten your chances of success. To do this, you should have a clear innovation approach across your entire business.  

Maintaining robust documentation

To support your Patent Box claim, you’ll want to maintain robust documentation of the entire process – from R&D to patenting.  

It’s worth streaming revenues and tracking costs. Building a system for calculating qualifying profits can be time consuming but it makes compiling details a more straightforward process – especially for patents that may follow in subsequent years.  

Aligning R&D and IP strategies

Research and development is integral to Patent Box tax relief. Patent box and R&D tax credits incentivise and reward different stages of the innovation cycle: synergising to greatly increase earnings for your business.

In order to receive Patent Box tax relief, you have to have carried out R&D on the IP you want to elect. If you’ve not done so, it’s possible to claim back on R&D tax relief that you would have qualified for as a direct financial reimbursement – but only going back up to two accounting periods.  

Equally, if you already claim R&D relief it may be worth considering your next steps. You could be in a strong position to patent and claim under the Patent Box regime.  

Leveraging professional expertise  

Claiming for the Patent Box incentive is a complicated process, and if you are unsure what you are doing there is great value in working with an expert.  

Every patent is different, and so is every claim. Professional guidance will help you optimise your claim – and subsequently the financial benefit you can derive from it.  

Support should be personalised, beginning with a thorough assessment to tailor solutions specifically to your business needs. At Kene, we provide a detailed analysis on your patents and associated income streams to identify all eligible profits: ensuring you receive the highest relief you’re entitled to.  

Pitfalls to avoid in Patent Box Claims

You don’t want to miss out on Patent Box tax relief over simple mistakes. Before making your claim, you should have a comprehensive understanding of potential pitfalls to avoid.  

Overestimating qualifying income

Don’t let optimism get the better of you. Overestimating your qualifying income is an easy way to get caught out in the application process.  

To avoid this happening, it’s crucial to have comprehensive knowledge of what counts as qualifying income. Keep robust documentation of earnings from relevant streams so that you can present accurate figures.    

Neglecting ongoing compliance  

There’s a common misconception that once a patent is approved all the work is done. However, patents have ongoing lifespans that require work throughout.

If patents are not continuously managed, potential infringements could go undetected. Additionally, a lack of awareness for your patents makes it difficult to maintain strong, accurate Patent Box documentation.

Misinterpreting streaming requirements  

It’s now compulsory for companies applying for Patent Box to calculate their relevant IP profits using a streaming method. This requires IP income and expenditure to be allocated to separate streams for each IP asset, product or family.  

Best practices for maximising Patent Box benefits

Innovative businesses won’t just seek to receive Patent Box, they’ll strive to optimise it to the fullest potential. By instilling best practices, you’ll be able to increase your financial benefit by making the process streamlined for simple maintenance.  

Regular review of IP portfolio  

To maximise your Patent Box benefits, its crucial to have a comprehensive awareness and effective management of your IP portfolio. With a strong patent portfolio strategy, you’ll be able to effectively respond to any infringements, and have a thorough knowledge of your earnings and qualifying patents.  

Integrating Patent Box into business strategy

The Patent Box tax incentive should be considered throughout your business strategy and innovation process – not as an afterthought.  

Integrate a clear innovation strategy with well-designed goals from the beginning of your R&D process. This should be communicated across your company to create a unified mission towards pioneering groundbreaking products or processes.  

How Kene can help  

Patent Box tax relief offers a valuable opportunity to boost innovative businesses, but navigating the complexities can make it challenging to claim effectively—or even at all.

That’s where we come in. We prioritise providing specialised support, tailoring our compliance assurance service to your business. Our expertise ensures your claims are optimised, unlocking the full potential of relief schemes to benefit your company.

Get in touch today to see how we can help your business thrive with Patent Box.

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