When taken together with R&D tax credits, the patent box initiative means that the UK has one of the most favourable tax regimes for innovative businesses. There has however been concern from the government that smaller UK businesses may miss out on the chance to qualify for these tax breaks.
Over the last year, foreign businesses have been proactive in filing patent applications in Britain with a 14 per cent increase in the number of patent applications made by overseas companies, by contrast, the number of UK companies filing patents appears to have stagnated.
The government is keen to spread the word to smaller companies with ministers pointing to the folding bicycle manufacturer Brompton Bicycles as an example of a smaller company expecting to capitalise on the patent box. The business has a turnover of £16.7 million and expects the patent box scheme to save it around £132,000.
For technology based companies and for biotech and life sciences companies in particular, the patent box should be of tangible benefit. Even a loss making biotech which is being sold may find that a purchaser will place a higher value on a company with assets within an effective 10% tax rate rather than a 20% tax rate, so a conversation with HMRC may pay dividends.
The government have also indicated their willingness to defend the scheme against accusations from the European Commission that it will result in harmful tax competition. We await the deliberations of the Code of Conduct Group who met this month to consider the issue, but it seems highly unlikely that the government will bow to pressure from Brussels to amend a policy that recognises the importance to the UK of research and development and is delivering a real stimulus to companies engaged in innovative and creative industries.
The message from government is clear. It isn’t just about the big boys taking advantage of the tax breaks. This is one for all innovative SME’s. It is about ensuring that innovation is protected and about identifying the hidden value in patents. HMRC have indicated their willingness to engage with companies interested in how the patent box will work and to have conversations ahead of the first claims being made. If they haven’t already, it is time for businesses to review their patent portfolios and their current and future licensing arrangements and to ensure that they have maximised the benefits on offer.