The UK Patent Box tax relief scheme allows UK-based companies to benefit from a reduced rate of corporation tax (10%) in relation to profits attributable to patented technologies.
Earlier this year, a small number of high-profile politicians called for the Patent Box scheme to be scrapped for failing to achieve its aim of incentivising research, development and commercialisation in the UK. The accusation was that the scheme was merely a cushy tax break for “big pharma”.
The statistics for the first year of the scheme (2013-2014) are now available. So can we now make some informed assessments of the scheme’s success?
We can learn that almost two thirds of the companies who claimed tax relief through the Patent Box in 2013-2014 were medium, small or micro enterprises. Clearly then, the Patent Box is not only appealing to large companies.
Large entities did claim the vast majority of tax relief overall (95.4% of the total). Even if larger companies are expected to generate higher profits and claim more relief, this figure is remarkable.
The HMRC statistics do not however include the sector breakdowns necessary to assess if big pharma is the main beneficiary of the scheme. We do know that 63.6% of claimants were in the manufacturing sector (which accounted for 63.3% of the total relief claimed), and this might well include pharmaceutical manufacturers. Alternatively, pharmaceutical companies might fall within the “Professional, Scientific and Technical” or the “Admin & Support Services, Education, Health and Other” sectors referred to – HMRC’s report does not make that clear.
What is clear is that the first year of the Patent Box was not an unqualified success in terms of uptake. Only 700 companies claimed Patent Box relief for the year 2013-2014. This might be attributable, in part, to a low level of awareness of the scheme when it first began. Smaller companies might also be deterred by the complexity of the scheme. The complexity issue won't be helped by the recent modifications to the Patent Box (details here). Nevertheless, the Patent Box is open to SMEs, and patent attorneys and tax advisors can help them benefit from the scheme.
The article below compares the 700 claimants for Patent Box relief with the 10,000+ claimants for R&D tax relief in the same period. This isn’t a very informative comparison however. Patent Box relief requires profits to be generated through the commercialisation of a patent technology, so it is only applicable to successful technologies. R&D tax relief on the other hand can be claimed during the early stages of research, irrespective of its eventual success or failure. As a result, many more businesses are able to claim R&D tax relief than Patent Box relief. In addition, the R&D tax relief scheme is already well-established.
Nevertheless, the take-up for the Patent Box scheme is quite underwhelming. It will be interesting to see future years' stats to see if and how the uptake of the Patent Box changes.
Only 4.6% of available relief was claimed by small and medium-sized businesses on the Patent Box, according to HMRC’s most recent statistics. Patent Box expert Kari Campbell has revealed that only 700 claims made between 2013 and 2014 – the first year of available statistics – compared to over 10,000 claims made for research and development tax relief over the same period.