Articles
Protecting inventions with patents is crucial for engineers who want to keep their market share and license or sell their technology to others. Simply put, patents cover how things work, what they do, how they do it, what they are made of and how they are made. Patents give the owner the right to prevent others from making, using, importing or selling the invention without permission.
In less than six months’ time, engineering companies will have even more of an incentive to file for, retain, commercialise or develop existing patents, as a reduction in corporation tax for patent income will be introduced.
In a bid to boost engineering and to prevent high-profile corporate emigrations to countries with more appealing tax regimes, the government is reducing tax on patented technologies from 26% to 10%. This new regime is known as the patent box legislation.
But certain criteria need to be met to qualify for this tax relief once it is introduced on 1 April 2013. Firms must hold a qualifying patent (either granted by the UK Intellectual Property Office, the European Patent Office, or in a European Economic Area state that has similar patentability criteria to the UK) or an exclusive licence for such a qualifying patent.
For smaller companies this may mean investigating the benefits of patents for the first time, while larger firms may be prompted to review their processes to ensure that they are watertight and bringing in maximum revenues.
Companies that have pending patent applications, which often take three to four years to grant, will not be eligible for this tax relief. But, as long as a firm in this position elects into the new regime, the reduction in corporation tax may be backdated up to six years prior to the patent being granted.
Crucially, the new regime will only apply to groups that have been properly involved in the invention. The company claiming the benefit of the reduced tax rate must show that it has carried out development activities in relation to that invention.
When calculating the extent of the tax relief, a surprising number of income streams are taken into account. For example, the proceeds or royalties from the sale or licensing of the patent and the proceeds from the sale of goods (such as spare parts) that incorporate the invention or which are designed to be incorporated into the invention are included as “relevant intellectual property income” for the purposes of the tax relief.
The consensus in industry seems to be that the patent box legislation is a positive step towards encouraging innovation within the UK. In fact, HM Revenue and Customs has said that it is already seeing more multinationals choosing to invest in the UK market.
Critics have cited the administrative burden of the legislation. Certainly the amount of work required to be ready for the introduction of the regime should not be underestimated. It has also been argued that the complexity of the law may deter some companies from electing into the regime.
Furthermore, the new rules do not apply to copyright or trademarks in isolation; and design rights are not specifically mentioned. There is however the hope that once the legislation comes into force there may be scope for its application to be broadened.
UK businesses need to start talking to their legal teams and accountants now. Current intellectual property (IP) and patenting strategies need to be reviewed if companies are to reap the benefits of the new rules. After all, this new regime will firmly place this country on the map for the holding of IP rights and patent rights, and enable UK firms to compete with their European counterparts.