warehouse factory machinery

Goodbye grandfathering

Emma Reynolds, Director, Corporate Tax
warehouse factory machinery

The UK patent box saw new rules introduced from 1 July 2016 but subject to a period of “grandfathering” which meant that “old” patents could continue under the old rules until 1 July 2021. The regime offers an effective 10% Corporation Tax rate on profits attributable to UK or certain European patents.

R&D and Patent Box tax reliefs in the UK are intended to work together to provide a fabulous suite of reliefs to support innovation through the lifecycle of a product and business.

Since 1 July 2021, all patent box claims will be made under the “new” rules. There are some significant differences to the old rules, which include:

  • More granular income and cost calculations associated with each patent, and
  • A new R&D “nexus” fraction.

The new R&D nexus fraction reinforces the connection between R&D tax relief and the Patent Box qualifying expenditure.

The new fraction is likely to see patent box claims reduced where companies have acquired IP associated with their patent or where they have paid connected parties (which includes group companies) to undertake some of the development work.

For older patents which are now coming out of the “grandfathered” old rules, unfortunately, there is also another sting in the tail of the new rules, companies may find themselves having to refer back to the original costs incurred in historic periods when the relevant IP was developed to be able to build the components of their R&D nexus fraction.

The qualifying conditions and calculations for the Patent Box are complex but can deliver impressive Corporation Tax savings to companies deriving substantial profits from qualifying patents.

To discuss your Patent Box needs please speak to Emma Reynolds, Simon Crookston, Stuart Weekes.

Contact us

Stuart Weekes
Stuart Weekes
Partner, Corporate Tax
Thames Valley