Report released on the initial uptake of the UK’s Patent Box
22 September 2016
The UK’s Patent Box regime came into force on 1 April 2013, through which companies are able to pay a reduced rate of UK Corporation Tax on profits derived from patented technology.
More than three years after its introduction, HM Revenue & Customs have, for the first time, published a report on the uptake of the scheme, which can be found here. The report includes a number of notable statistics, which are discussed below.
The first year, 2013/14
The report, published on 14 September 2016, covers the first year of the scheme, namely the fiscal year 2013-14. The reason for the delay in reporting on that year’s claims is because companies are able to notify HMRC that they wish to benefit from Patent Box within two years after the end of the accounting period in which the relevant profits arise. The report states that in the future HMRC are considering publication of provisional statistics gathered only one year after the end of the fiscal year. This should mean that this time next year we will see full figures for the 2014-15 fiscal year and provisional figures for last year.
Take-up is significantly lower than expected
The total amount of Patent Box relief claimed by companies in 2013-14 was £342.9m. To put this into perspective, Corporation Tax receipts in 2013/14 were £39.6b, i.e. 115 times the amount of Patent Box relief.
When the scheme was first proposed, the Government undertook an impact assessment, in which it estimated that the fiscal impact would be £500m. Since the actual figure for claims was only 69{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} of the anticipated figure, this shows that take-up was lower than expected.
In a similar vein, a mere 700 companies claimed Patent Box relief. This is a drop in the ocean when considering that 1,117,780 companies paid Corporation Tax in 2013/14, which means that only 1 in every 1,600 of the Corporation Tax paying companies used the scheme. Whilst there is no doubt that the bulk of UK companies do not set out to be innovative, this nevertheless represents a further indicator of disappointing take-up.
Company size and Patent Box
One eye-catching figure in the report is that 95.4{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} (£327.2m) of the total Patent Box relief was claimed by 225 ‘large’ companies who made up 32.1{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} of the total number of Patent Box claiming companies. On the face of it this statistic looks surprisingly high, however looks can sometimes be deceiving. Simply put, larger companies pay more Corporation Tax in the UK. In particular, for 2013/14 the top 35.7{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} of eligible companies paid 93.6{e27634494e39db391c4a3c1babcce9c96667e0da0c02f00a98e80c871bbff07c} of Corporation Tax in, which is very much in line with the Patent Box relief figures.
In light of these figures and returning to the question of the amount of Patent Box relief claimed compared to the amount initially forecast by the Government, it is clear that the biggest contributor to the reduced amount of Patent Box relief came from fewer large companies making claims, or their claims being smaller than originally anticipated.
Patent Box is undersold
The figures show that of all the small and micro sized companies who claimed patent box relief, the average benefit was a modest £13.5k. Such amounts can, nevertheless be of great value to companies of that size. Overall, it is clear that the Government should now do more to publicise Patent Box in order to further assist innovative UK businesses.
For the latest news regarding changes to Patent Box, please see our article here.
Michael Jaeger
Electronics, Computing & Physics group
If you require further information on anything covered in this briefing, please contact Michael Jaeger (mjaeger@withersrogers.com; +44 207 940 3600) or your usual contact at the firm. This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Withers & Rogers LLP, September 2016
