Having been to two UK patent box seminars over the past fortnight, one of which we hosted, I’ve been struck by the realisation HM Treasury’s patent box rules are really not that difficult to fathom. That’s easy for me to say – the joy of our role as advisors to tech and biotech companies is that we don’t deal with ‘tax people’ – by that I mean we have to express tax concepts in non-technical ways. This doesn’t mean we dumb down the content, but it does mean that in the course of the explanation we realise that the interpretation of new tax rules becomes clearer to us as well as to the companies we advise.
In terms of the UK patent box, then, you can say the rules are enabling an extra tax deduction so that you pay less tax on your patent-related profits. And that’s all there is to it. Of course in going through the detail you will find there are mechanical rules to negotiate and advice on company structures to absorb, but the basic ‘should I bother’ decision is easy: of course you should.
I’ve picked up the perception that the rules around the UK patent box are complex and difficult to meet and the main objection is that ‘it all seems too hard’. Of course if there weren’t some rules then there would be abuse of the system. So take some advice and talk to HMRC to work out how to gather the necessary information to make a claim. Would you rather be in a country that does not have a patent box? Of course you wouldn’t. No one likes paying tax. And having a tax system that incentivises innovation is a great thing.
When R&D tax credits were introduced there was a lot of sucking air through teeth. ‘It’s all very complex.’ ‘Why can’t the Government just hand out the money…’ Well, it does, but there is a need for checks and balances. These days, companies do their own R&D tax credit claims or get a little help to handle the process without hours of agony. The process rolls on year after year becoming more comfortable and familiar. I believe we’ll soon get to the same place with the patent box rules.
Another gripe I hear is ‘I have all the tax deductions I need, so why claim?’ True, you certainly don’t want to claim until you have taxable profits, but you can do a little work in preparation. If your strategy is to sell before you are anywhere near making a profit then the acquirer could be very interested in whether they can benefit from a tax deduction post-acquisition. We are already seeing these questions raised during due diligence processes.
So if you are involved with a company that owns or licenses in patents then stop looking for excuses and take the patent box off your list of worries and put it on your list of ‘to-dos’.
You may also be interested in reading our other patent box blog