UK Patent Box: two-year time limit for elections

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THIS note is intended to clarify and provide some comfort on the timing of the adoption of the new Patent-BoxPatent Box rules.

The UK Patent Box provides a reduced rate of corporation tax on profits derived from patents.  The rules that set out how relief is given will change with effect from July 1, 2016.

This is the effective date for new legislation – these developments do not trigger a need to make any election prior to June 30, 2016. A company with existing patents can elect to apply the old, less restrictive, patent box rules and for some companies there will be a benefit in doing so. The time limit for an election follows the time limits for the tax return. This means that the election will be made in the tax return that includes July 1, 2016. This return can be submitted up to two years after the end of the accounting period. For example, for a company with a December year-end the election must be made by December 31, 2018, which is the usual deadline for amending the December 2016 return.

Patent Box benefits will still be available under the new rules.   There will, however, be additional restrictions on the relief available. These changes will restrict the Patent Box benefit for some companies, primarily those that have acquired IP or where IP is held in a different legal entity to the R&D activity.

Due to the way the Patent Box benefit is calculated, electing in early to ‘lock in’ the old rules while still loss making will reduce future Patent Box benefit. This must be weighed against the restrictions of the new rules. Companies will need to consider how benefits could be maximised in the future and how this may impact business development.  The two-year election rule offers time to think, prepare forecasts and understand the implications for your situation.

As an added incentive to wait, the new law is still evolving. We are involved in discussions with the Treasury and HMRC as they develop the legislation and guidance. You are welcome to call us to discuss the changes and how they apply to your company’s situation. 

Gill Turner, May 2016