At Secerna, we understand the critical role intellectual property (IP) plays in fostering a robust innovation ecosystem. Government incentive programs like the Patent Box offer significant tax advantages specifically designed to encourage research and development (R&D) activities. This article provides a comprehensive overview of the latest developments in the Patent Box scheme and its potential benefits for your business, helping you unlock tax savings and fuel a culture of innovation.

Reduced Tax Rates for Patented Products and Processes

The Patent Box scheme allows qualifying companies to benefit from a reduced corporate tax rate on profits derived from patented inventions. This translates into substantial tax savings on profits from your patented products or processes, which you can strategically reinvest into further R&D, accelerating innovation and technological advancements. Importantly, the Patent Box also extends its benefits to royalties received from licensing out your qualifying intellectual property rights.

Latest Updates to the Patent Box Scheme

Recent changes in UK tax policy continue to shape the Patent Box landscape. HMRC's official statistical release provides valuable insights into the program's usage and impact. Here's a summary of the key findings and trends:

• Overall Trends: The Patent Box scheme has seen some interesting shifts in recent years. While the number of companies electing to the scheme has fluctuated slightly, the overall value of the relief claimed has shown a general upward trend.
• Participation Numbers: In the tax year 2022 to 2023, provisional estimates indicate that 1,600 companies elected to the Patent Box. This represents a small decrease from the 1,630 companies electing in during the 2021 to 2022 tax year. It's important to note that these 2022-23 figures are provisional and subject to revision in the next annual release (Autumn 2025) as more complete data becomes available. (See Figure 1)
• Value of Relief Claimed: Despite the slight dip in participation numbers, the total value of relief claimed under the Patent Box increased significantly. It rose from £1,327 million in 2021-22 to an estimated £1,469 million in 2022-23. This suggests that while fewer companies might be participating, those that are claiming, on average, more relief. Large companies primarily drive this increase by claiming more relief on average. (See Figure 2)
• Large Companies Still Dominate: A striking and consistent trend is the disproportionate share of relief claimed by large companies. In 2022-23, large companies, representing only 25% of all companies electing to the scheme, accounted for a massive 94% of the total relief claimed. This pattern is unchanged from 2021-22, where large companies also claimed 94% of the relief. This data clearly demonstrates that the Patent Box, while available to all eligible companies, primarily benefits large businesses.
• Sectoral Distribution: The manufacturing sector continues to be a major beneficiary of the Patent Box. In 2022-23, companies in the manufacturing sector claimed an estimated 41% of the total relief. While detailed sector breakdowns aren't available for the full 2022-23 year, it's expected that manufacturing, along with "Professional, Scientific, and Technical Activities," and "Information and Communication," will continue to represent a significant portion of both participating companies and total relief claimed, given their focus on R&D and innovation. (See Figures 1 and 2)
• Regional Distribution: Regional disparities in Patent Box usage persist. In 2022-23, London-based companies claimed the largest share of the relief (48%), even though the Southeast had the highest number of participating companies (15%). This pattern is consistent with previous years. It's crucial to understand that these regional figures are based on registered addresses for tax purposes, and may not accurately reflect where the actual R&D activity takes place. A company might have its headquarters in London but conduct its research and development elsewhere.
• Claim Size Distribution: A small number of large companies account for most of the relief claimed. In 2022-23, the top 285 companies (by relief claimed) accounted for over 97% of the total relief. Interestingly, approximately 11% of companies that elected to the Patent Box claimed no relief at all during the same fiscal year.

Figure 1: Number of companies choosing to elect to the Patent Box by sector from 2013-14 to 2022-23

Figure 2: Total amount of relief claimed by sector from 2013-14 to 2022-23

Maximizing the Benefits: Considerations for Your Business

While the Patent Box offers undeniable advantages, a thorough understanding of eligibility criteria and program specifics is crucial for optimal utilisation. Secerna can assist you in navigating this process:

• Eligibility Assessment: We can evaluate your company's IP portfolio and R&D activities to determine if you qualify for the Patent Box. Given the evolving tax landscape, consulting with a tax advisor is highly recommended for the most up-to-date insights. To qualify, companies must demonstrate "active involvement" in developing the patented invention or managing the patent rights. This typically includes activities like conducting research, developing prototypes, improving existing technologies, or actively licensing and enforcing patents. Simply owning a patent is not enough. The company must be actively engaged in furthering the technology or commercializing the invention. For instance, a company that modifies and improves a patented process for manufacturing cars would meet the development condition. Similarly, a company that licenses its patented technology to other manufacturers and provides technical support would also likely qualify.
• Strategic Patent Prosecution: Our expertise in patent law ensures your inventions receive the strongest possible protection, maximizing the potential benefits you can derive from these programs.
• Invention Harvesting: We assist in identifying new inventions that may qualify for the Patent Box, enhancing tax savings for years to come.

Beyond Tax Savings: The Broader Benefits

The Patent Box offers more than just financial rewards. These programs can significantly enhance your business in several ways:

• Enhanced Global Competitiveness: A strong patent portfolio, coupled with significant tax savings, positions your company as a leader in innovation. This attracts investors and customers worldwide, propelling your business to the forefront of the global marketplace.
• Talent Acquisition and Retention: A focus on R&D creates a dynamic work environment that fosters continuous innovation. This environment is highly attractive to top scientific and engineering minds, aiding in talent acquisition and retention.

Unlocking Your Innovation Potential: The Next Steps

At Secerna, we are committed to helping companies like yours leverage the power of intellectual property to achieve their strategic objectives. Here’s how to get started:

• Schedule a Consultation: Connect with our team to discuss your specific R&D activities and IP portfolio. We can perform an IP audit to identify any patentable inventions, which could then be exploited through the Patent Box with the help of a tax consultant.
• Strengthen Your Patent Portfolio: Our team of patent attorneys can help you secure strong patents that maximize the value you can derive from the Patent Box.
• Explore Government Resources: The UK government provides detailed information on their Patent Box programs on their official website here: https://www.gov.uk/guidance/corporation-tax-the-patent-box
• Consult with a Tax Advisor: For the most up-to-date information on tax implications and eligibility requirements specific to your company, consulting with a tax advisor is highly recommended. While consulting with a tax advisor is crucial, the application process involves demonstrating eligibility by providing detailed information about the patented invention, the associated profits, and the company's R&D activities. Accurate record-keeping is essential. 

  By leveraging Secerna’s expertise and government incentive programs, your company can unlock significant tax advantages and fuel a culture of innovation. This strategic approach will empower you to translate your groundbreaking ideas into reality, driving your business toward a successful and sustainable future. Contact Secerna today.

   

  References: [1] HMRC Patent Box Relief Statistics: September 2024 - GOV.UK

  [2] https://www.gov.uk/guidance/corporation-tax-the-patent-box