Think before electing into the patent box regime

Background

The UK’s patent box regime came into operation in April 2013. This subjects worldwide profits attributable to qualifying UK and EEA patents and rights (but not design registrations, trademarks or copyrights) to an effective rate of corporation tax of 10%.   In actual fact the relief is being phased in and so the full 10% rate will not apply until 1 April 2017.

The Issue

Although the patent box regime is generally a good thing, the effect of electing for loss making patents would be negative. This is because tax relief on the patent box loss is then limited to 10%.

Conclusion

Therefore it does not generally make sense to elect into the regime until there is a level of certainty that profits will be generated from the patents.

 

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