The UK Patent Box—is it delivering?
The aims of the Patent Box are to encourage innovation by existing companies and, to an extent, to influence a company’s decision about where its innovation work should be carried out.
The UK edition of the Patent Box began in 2013, offering a significantly reduced rate of corporation tax payable on profits derived from patented technologies. After a few years of phasing in, companies taking part were able to access a rate of 10%, a significantly lower rate than the usual 20% (2013–17) or 19% (2017–present).
The UK’s HM Revenue and Customs released the latest figures about Patent Box usage and uptake last month, which cover the financial year 2017–18. The ‘lag’ in figures is due to the fact that Patent Box tax benefits can be claimed up to two years after the relevant accounting period. So, for example, it will not be certain what the figures for 2020–21 are until April 2023.
Where are we now?
The latest figures paint a fairly rosy picture of Patent Box usage. The financial year 2017–18 saw the highest number of companies claiming relief (around 1,300) and the highest value of relief claimed (around £1.1 billion). Data for 2018–19 so far indicates that it is likely to set new records.
The figures show an encouraging uptake across different sizes of companies: the number of micro, small, medium and large-sized entities claiming Patent Box relief were each in the range of 260 to 360. We do not know how many companies there are in total (so no percentage can be estimated).
The proportion of companies claiming relief correlates to company size: the number of large companies claiming is the highest, the number of micro companies, the lowest.
However, when you dig a little deeper into the statistics some large disparities emerge.
Most of the companies claiming relief (around 75%) are in manufacturing or wholesale/retail which is not surprising: these are sectors where patented products might be most easily identified, and profits stemming from them most easily quantified.
