UK patent law changes April 2013 – the implications for companies


The UK Patent Box Scheme takes effect this April. At the heart of the Scheme is that UK companies’ profits that are derived from patents will be subject to corporation tax of 10% rather than the standard rate of 23%. The aims are to incentivise UK businesses to commercialise their existing patents and develop new patents and products incorporating them, and to make the UK an attractive location for innovative industries.

Who can benefit from the tax break?

To be eligible, the company (or another company in the same group) must be actively involved in the creation or commercialisation of patented technology. It is not sufficient, for example, for companies to be passive recipients of income from patents they have acquired from third parties. So if your businesses has developed or commercialised a patent in conjunction with a third party you will need to show that you have taken an active role in the process.

What does the Patent Box Scheme apply to?

The Scheme applies to patents registered with the UK Intellectual Property office or European Patent Office. To calculate the amount of profit eligible for the reduced tax rate of 10% you need to assess the proportion of your worldwide income that comes from patented products and processes.

This could include the proceeds of patent sales, license fees and royalties from patents, a portion of the sale value of patent-protected products and associated spare parts and consumables (“embedded income”), as well as damages for patent infringement.

Companies who believe that they could take advantage of the Patent Box will need to review their procedures for identifying new inventions that are eligible for patents and try to make sure new products include at least one patented item. They will also need to ensure that they exploit the value of their patents to maximum commercial effect.

It is advisable to consult with patent and tax lawyers to develop strategies to take full advantage of the new rules.


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