Patents generate revenue streams as well as notional royalty rates.
The Patent Box scheme came into force in April 2013. Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations (as well as profits arising from supplementary protection certificates, regulatory data protection and plant variety rights). The relief will be phased in, and the lower rate of Corporation Tax to be applied will be 10%. This 10% rate will apply from April 2017.
The aim of Patent Box is to act as an incentive for companies in the UK to develop new innovative patented products. This will encourage companies to create and invest in high-value jobs associated with the development, manufacture and exploitation of patents in the UK and maintain the UK’s position as a world leader in patented technologies.
In order to qualify for Patent Box, you must own or exclusively license-in patents related to a revenue-generating product, and must have been involved in the qualifying development. Qualifying development will typically involve activities such as creating, or significantly contributing to the creation of, the patented invention, or performing a significant amount of activity related to the development of the patented invention, any product incorporating the patented invention or any process incorporating the patented invention. Furthermore, in order to qualify for Patent Box, the patent must have been granted and cannot still be in the application phase.
Qualifying income can arise, for example, from the following:
- Selling patented products
- Licensing out patent rights
- Selling patented rights
- Income arising from infringement of your patent rights – e.g. damages awarded
- Income from use of a patented manufacturing process
- Income from provision of a service reliant on a patented tool
For the last two examples in this list, it is necessary to attribute a notional royalty to the patent to determine the income that qualifies for Patent Box.