On 7 November 2024, HMRC released its new Guidance for Compliance (GfC9) relating to claiming tax relief through the UK’s Patent Box scheme.
As a quick summary, the Patent Box scheme is a tax incentive designed by the UK Government to encourage UK businesses to protect their innovations by patenting them. In exchange, the Government provides a reduced corporation tax (CT) rate on all profits made related to the patented invention. The headline rate offered by the Patent Box is CT rate of 10%, down from 25% (higher rate). This reduction can be hugely beneficial to businesses, allowing them to reinvest their tax saving into further R&D or further IP protection. For further information on the Patent Box or to find out if you are eligible, please contact us.
The UK’s Patent Box legislation is quite complex, and it is not as simple as showing what patents you have and what related profits you have made to successfully claim. Recently, HMRC has seen a variety of avoidable errors made by claimants ranging from not adequately showing the business has a qualifying IP right, to errors made within the Patent Box calculation itself. HMRC now expects further information to be provided when filing your Patent Box claim, here we will go into some of those requirements and some common errors we see businesses make when claiming.
HMRC expects businesses to be able to show what qualifying IP rights they hold including specific data points such as the date of grant and expected expiry. Often, we observe that businesses may not adequately evidence their qualifying IP right(s) for Patent Box purposes. It is often easy to assume that your patent may be granted when in fact it is patent pending, or you had a patent granted in a qualifying territory, but it is now expired or has lapsed due to non-payment of a renewal fee.
We also see that given that the scheme is titled the Patent Box, businesses assume that it is only granted UK patents that qualify as a qualifying IP right. That is not strictly true, below is a list of what rights can be considered as a qualifying IP right according to the UK’s Patent Box legislation:
The legislation also states that eligible businesses must own or hold an exclusive licence to the qualifying IP right. When it comes to group companies there are specific rules regarding active ownership that are slightly more nuanced and can lead to some flexibility around this requirement. Please contact us if you would like further guidance on this.
When making a Patent Box claim, it is best practice for businesses to show their workings regarding each stage of the Patent Box calculation with an explanation surrounding your choices. The Patent Box calculation is quite complex, and the calculation path you take depends on the nature of the income you receive and how your technology is commercialised.
There are various factors to consider, such as:
HMRC ultimately want to see as much supporting evidence as possible to back up your claim, hence why record keeping and presenting the facts accurately is an important part of making a claim. This will lower the risk of a compliance check. We present essential patent information as part of our technical reports, and HMRC are now asking for similar information to be presented to them as part of the new guidance for compliance.
