You wouldn’t know it, but some of my clients are Rocket Scientists. No really, no Shania Twain puns intended! If all goes according to plan, their invention will be built into rockets to launch into space over the next few months. Then, I have other clients for whom I am doing R&D tax relief claims and we are hoping to be granted a patent.
Why am I telling you this, I hear you ask?
Well, for starters, it’s cool and exciting to have clients engaged in such innovative work, but the real reason is that we are focusing on how they can patent and licence their inventions. While they’re making such big strides in business, we are helping them to reduce their corporation tax bill in the process! And that’s what this article is all about. What do you need to know so you can also reduce your corporation tax bill.
| Want to skip to the solution? If you don’t want to read but you do want to reduce your corporation tax bill, get in touch with us at [email protected] for our specialist tax help. |
The Patent Box tax regime
So I’ll admit it, I can be a tax nerd sometimes! However, this was something that most people would get excited about. I mean, who wouldn’t want to reduce their corporation tax bill? For me, my excitement was doubled because I did reduce their bill and I was able to reduce it significantly using the Patent Box taxation rules.
Now, for those of you who are interested, the UK’s Patent Box tax regime has been with us for a while and for the last year, the data has just been made available. Apparently, this regime has helped around 1,500 companies save approximately £1.36 billion in tax last year. Talk about significant tax savings!
For me, though, the problem is that with an average of 70,000 patent applications each year, this means that many companies are missing out on the relief. Why? Because every tax relief has rules.
The criteria for Patent Box relief
Before you get too excited at saving loads of tax, like all things to do with tax relief, there are criteria. Not to mention that the calculation requires the company to have kept the right accounting records to provide the necessary information (this is the tricky part!).
For many of our clients, a big part of our work is making sure that the tax boxes are all ticked off properly.
How much can you save?
To put it as simply as possible, you pay a 10% tax on those profits allocated to exploiting your patents.
For example:
- Companies that pay tax at 19% save just over 47% of their tax bill.
- Companies that pay tax at 25% save 60% of their tax bill.
As I said, a really significant tax saving for companies who are eligible.
Are you eligible?
To qualify for Patent Box, you must:
- Be a UK-limited company subject to corporation tax.
- Have a patent – either own a qualifying IP right (it’s not just patents) or hold an exclusive licence over a qualifying IP right. Note: your patent could be either a UK or European one.
- Have made a significant contribution and undertaken qualifying development in the creation or development of the patented invention, or of a product incorporating the patented invention.
- Be making profits from the ‘patented’ IP.
*If you don’t have a patent yet but are working towards one or have applied, then now is the time to think about getting organised. Your accounting system needs to be collecting information that splits out your ‘patent box’ revenues and expenditures.
Already have a patent?
If you already have a patent, you need to act quickly! You have 2 years from the end of the year in which income arose to:
- Tell HMRC you elect for patent box taxation; and,
- File a claim for those tax savings!
If you need support, don’t hesitate to get in touch with us at [email protected]. Don’t miss out on this golden opportunity to reduce your corporation tax.
Leveraging R&D tax credits
Now, here’s something even more exciting: Did you know that R&D tax credits can also help reduce your corporation tax bill? If your company is engaged in innovative projects, you might be eligible to claim back a portion of your R&D expenditure. The government offers generous incentives for companies that invest in research and development. These R&D tax credits can either reduce your corporation tax bill directly or provide a cash injection if your company is making a loss.
To be eligible for R&D tax credits, your project must seek to advance science or technology and face uncertainty that a professional in the field cannot easily resolve. The good news is that costs like staff wages, materials, and some overheads related to the R&D project can be included in your claim.
Maximise your savings
While you could benefit from the Patent Box tax regime, you can also use R&D tax credits to further reduce your corporation tax bill. So why not combine them? These fantastic opportunities aren’t just for rocket scientists either – they’re for any forward-thinking, innovative company out there.
Combining these tax reliefs can result in substantial savings, allowing your business to reinvest in further innovation and growth.
Think you’re eligible? Or you will be in a year or two or three?
To find out more, get in touch with us at [email protected] – we can help you to take action to save money!
