Why are less than 1% of UK SMEs claiming Patent Box?

UK Plc is a leading digital nation - ranking top for Artificial Intelligence (AI) among the likes of the US and China, and in 2018 received £6.3 billion of scale up Venture Capital investment. As British technology companies chart a new course post-Brexit, of key importance in 2020 will be to clarify the UK’s future digital trade policy. This will define regulated controls over what AI data can be encrypted, and shared, and how open our economy should be to massive flows of source codes and mining algorithms.

In the era of the EU Digital Tax reforms, new changes to legal & tax frameworks have created an uncertain environment surrounding Intellectual Property Rights (IPR) as companies seek to scale or go global. Meanwhile, a key concern for the UK government remains to ensure that British businesses continue to benefit from membership of the Unified Patent Court and European Patent Commission.

Businesses seeking decisive action in 2020 are therefore seeking clarity. As such the UK government has updated a key measure through which to empower UK innovators and de-risk domestic R&D. ‘Patent Box’ is a UK incentive and a key solution to address this challenge – as a government introduced tax-relief scheme for innovative companies, Patent Box captures value from profits derived from patented products, processes, and services – specifically, companies owning a relevant IP right can benefit from a 10% effective rate of corporation tax on qualifying profits.

Patent Box is therefore a valuable resource for both manufacturers and service companies that are already, or plan to become, leaders in AI or digital. In particular, for those who seek to monetise and protect their cache of algorithms, GUI user interfaces, hardware, and software. Therefore Patent Box remains a vast growth opportunity, insurance, and point of value creation for the best and brightest among UK companies in the era of Industry 4.0.

However less than 1% of UK SMEs leverage Patent Box, while there exists a high regional disparity in access to the scheme, particularly in key industry clusters outside London. One factor contributing to the UK’s low engagement with the scheme may be the new regime measures introduced in 2016 – which for specialist AI firms and companies launching new digital arms, created the need to resource specialist external expertise to accurately unlock Patent Box and the relevant tax break.

Leyton is a key strategic growth partner to assist leading-edge companies in securing their tax rewards under the Patent Box scheme. Our team of technical, software, and tax consultants possess an unrivalled capability to understand qualifying technology projects, and can accurately compute profits derived from complex hardware, software, and mixed product income streams critical for digital-ready products.

Leyton’s proven methodology is designed to help leaders make distinctive, lasting, and substantial improvements to the performance of their organisations. The firm has more than 16,000 clients globally, served from 27 offices worldwide and works with a range of companies from start-ups to multi-national organisations.

Author – Dr Jameel Zayed (Ph.D) – Chemistry, University of Cambridge

  • Fraser Willcox

    Fraser Willcox

    Member Relations Manager
    T 020 7331 2057

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