Since April 2013 companies that innovate have been able to reduce their corporation tax (CT) through the patent box scheme, which allows additional deductions from trading profits that are generated from patents or the rights to use them. The deduction these companies receive is then staggered so that the full CT tax rate, which is capped at 10%, takes five years to achieve. However, as this is a UK based tax rate it has encouraged many companies that are based elsewhere to move some of their operations to the UK in order to benefit. This has caused the EU, particularly Germany, to object to the scheme. As a result the scheme is coming to an end and it has been announced that the reduced CT rate will cease to apply by June 2021.
So what does this mean for you?
If you are already using the patent box scheme, you can continue to do so until June 2021 when the CT rate will no longer apply.
If you are currently not part of the scheme, but intend on generating profits that will qualify for the scheme by June 2016, you can still take part and will achieve the 10% CT rate for a limited period before it disappears in June 2021.
If you are a qualifying company we advise you to seriously consider this scheme while you still can.
The EU may not stop at the patent box scheme, they are continuing to look at the taxation of intellectual property and it is expected that the UK’s research and development tax credit scheme may be next on their hit list.