HMRC has now released its latest statistics for the Patent Box scheme, covering changes to the uptake, value, and the demographic of claimants (FY 2023-24). This is the time when I would usually provide you with the highlights from the latest release. However, this year’s statistics raises some deeper questions as more can be done to meet the scheme’s original aims.
About Patent Box
The Patent Box is a Corporation Tax relief aimed at patent owners who have invented, protected, and commercialised their intellectual property (IP) in the UK. Aiming to foster economic growth through the retention of IP, the creation of high-value jobs, and the development of innovative products. A reduced Corporation Tax rate of 10% provides a real incentive for businesses to protect their innovations domestically. Greater now that the CT rate increased to 25% in 2023, and with a budget looming, who knows where Rachel Reeves will be looking to raise revenue. Learn more about the Patent Box scheme and its benefits.
Does it work?
In short, yes. Since the inception of the relief, we have worked with businesses across the country to secure patents and develop innovative products, in part due to the Patent Box incentive. We work with businesses of all sizes to prepare their Patent Box claims, and we see firsthand how the relief fuels further investment in R&D and patent filings.
Why is uptake so low?
The simple fact is that the scheme is not meeting its potential, with only 1,650 businesses claiming the tax relief compared to tens of thousands engaged in R&D. Combined with the number of claimants flatlining over recent years, there is clearly a disconnect between R&D effort made and the protection of resulting IP. The UK has always been a nation of innovators; however, it lags behind the largest economies in the world when it comes to patents.
To put this into perspective, the UK makes up approximately 3% of all European patent filings at the European Patent Office (EPO), behind some of our major competitors, including the US, Germany, China, France, and Japan. Patent filings from domestic companies to the UK’s Intellectual Property Office (UKIPO) has steadily declined since 2000 in both total volume and share.
Despite a ~30% increase in real terms private R&D spend from 2014-2022, it appears that the UK is steadily losing control of the resulting IP created.
Change is needed
If the UK is serious about driving innovation-led growth, bridging the gap between R&D activity and patent protection must be a shared priority. The Patent Box provides a strong framework, but the statistics point towards the need for a cultural change on IP protection. For policymakers, that means revisiting the scheme to ensure it plays to our strengths as a nation. Considering the inclusion of copyright and moving to an innovation box model will bring key Industrial Strategy sectors, such as financial/professional services and the creative industry, into scope.
Awareness of IP rights and its benefits is a long-standing issue for the UK. Embedding IP into our education system nationwide at all levels will go a long way to making the cultural shift.
Finally, our patent system needs to be brought into the 21st century. R&D projects are becoming shorter; the lifespan of innovations is also following the same trend. The time and financial investment to secure a patent is a real barrier to entry and signals the need for reform.
The question is no longer whether the Patent Box works, but rather how it can fulfil its potential to ensure that the UK does not fall further behind its competitors.
