Changes to Patent Box tax relief scheme

How do the new Patent Box rules affect our clients’ ability to claim relief, and are there likely to be any further changes to the scheme as a result of Brexit?

In July 2016 the Patent Box rules were changed slightly following the BEPS (base erosion and profit shifting) project led by the Organisation for Economic Corporation and Development. There was a general feeling that the Patent Box regime in the UK gave companies a distinct and unfair corporation tax advantage over those trading in other jurisdictions, and therefore the scheme was altered to level the playing field.

From 1 July 2016 Patent Box profits were subjected to a ‘Nexus fraction’ calculation which restricted the benefit of Patent Box relief to companies that subcontracted their R&D activities to related parties or acquired intellectual property from third parties. The rules also required profits arising from qualifying intellectual property to be linked to the R&D activities relating to the development of each particular right. These changes are unlikely to affect single company SMEs undertaking R&D in the UK.

Going forward it is very unlikely that Brexit will bring about any negative changes to the UK Patent Box scheme. The European Union effectively brought about the changes made two years ago, and so any changes made subsequently to Brexit are more likely to bring the scheme in line with its original (and more favourable) rules. 

All eyes will be on the Budget this autumn which should shed more light on any proposed changes to the scheme.

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The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.