Patent Box still a potent tool – accountants
Midlands businesses can still benefit from the Patent Box, according to international accountancy firm Mazars. It follows plans to amend it – resulting in a narrower focus on UK R&D.
That is the verdict from Birmingham professionals Peter Jelfs, senior tax manager at international accountancy firm Mazars, and Nicholas Braddon, an associate at trademark and patent attorneys Barker Brettell.
They state: “For many months it was apparent that several G20 countries, particularly Germany, were unhappy with a number of the Patent Box regimes.
“These were set up by national governments to offer preferential rates of corporation tax on profits derived from intellectual property, thus hoping to attract and create investment and jobs in hi-tech industries.
“The UK blueprint had come under attack for its provision that allows companies to access the lower effective rates of corporation tax on profits derived from patents where the associated R&D activities were not undertaken here.”
Despite this the Treasury had robustly defended the Patent Box.
It was a surprise that immediately before November’s G20 summit the UK and Germany revealed that they had buried their differences.
“The statement, which undoubtedly represented something of a compromise, was defended by George Osborne in Parliament as ‘a great deal for Britain’,” noted Jelfs and Braddon.
“Such positive spin may seem at odds with an apparent ‘watering down’ of a flagship policy, but it was not wholly unjustified – companies undertaking R&D in the UK will still be able to benefit from the Patent Box tax incentives.”
It seems that the political difficulties of, on the one hand, opposing tax avoidance within the bigger picture of the OECD’s profit shifting reform programme (the thorny issue of global businesses operating in the UK but often paying tiny amounts of tax), and, on the other, offering tax incentives that other powerful nations viewed as abusive, left the Government in an awkward position.
The detail still has to be worked out but the current UK Patent Box will now be closed to new entrants in June 2016 and abolished by June 2021 – companies already engaged can retain current benefits until then.
The implication is that a new, reformed version will be in place by the earlier date. However, it will only offer tax incentives where significant R&D is undertaken in the UK. There will be restrictions on qualifying expenditure where R&D work is not undertaken by the claimant, albeit the nature of this is still to emerge.
The OECD has promised guidelines by June but Jelfs and Braddon believe there remains much to be positive about.
Braddon said: “There is now certainty that the UK Patent Box will continue in a modified format. Companies already accessing the UK Patent Box will be able to remain within it for several years and plan ahead for the changes.
Overall, it is probably the best outcome that could have been hoped for. And the support given by Germany means it is unlikely to face any further challenges.
Jelfs commented: “No indication was given that the ten per cent rate of tax on profits derived from patents will change.
“Supporting innovative companies undertaking R&D in the UK and creating skilled jobs is still a high priority for the Government. The continuing success of the R&D tax credit scheme, combined with the Patent Box, makes the UK a great place for innovative companies to do business.
“Good for businesses and still good for UK patents.”
