UK Budget – tackle corporation tax with Patent Box
4 March 2021
In our previous article ‘UK companies still overpaying corporation tax’, we examined the slow uptake of the Patent Box scheme and how UK-based businesses are still missing out on significant corporate tax savings. As the Chancellor of the Exchequer, Rishi Sunak, unveiled his 2021 budget, it became evident that the Patent Box scheme could now be more helpful than ever to innovative companies in the UK.
In his latest budget, the Chancellor of the Exchequer announced that corporation tax will increase to 25% for larger companies in 2023. The rate will remain at 19% for businesses with profits of £50,000 or less, and rise in a tapered manner as profits increase to £250,000, at which point the full 25% rate will apply. This change is being introduced to raise additional revenue for the UK Government, to fund the deficit resulting from measures taken during the Covid-19 pandemic.
While this rate will remain the lowest for the G7 countries, it will cause concern among many businesses. However, help is at hand for innovative business who have patents in place to cover their products and services. The UK Government’s Patent Box tax relief scheme allows companies to pay a nominal 10% rate of corporation tax on profits generated from patented technologies. With the differential between the Patent Box rate and the top rate of corporation tax set to widen, we expect this scheme to become even more attractive to innovative UK companies. It is therefore incumbent on all such companies to set aside time to assess their intellectual property strategy, to determine if they can maximise the effect of their patent filing and mitigate this increased tax burden. Since it can take some time for qualifying patents to be granted, companies should act now to begin the process of filing patent applications and maximise the return on their R&D investment.
More details about the Patent Box scheme can be found here.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Withers & Rogers LLP March 2021