Patent Box: Consultation Document (substantial activities)

HM Treasury issued the Consultation document in respect of the new Patent Box regime on 22 October 2015. The existing UK Patent Box provides a reduced corporation tax rate of 10% on profits arising from patents. This regime will be closed to new entrants from 1 July 2016 and replaced by the new Patent Box regime which will commence on that date.

The new regime is based on a new nexus approach, as agreed by the Organization for Economic Cooperation and Development (OECD). Under the new regime, Patent Box benefits will be linked to the substantial activities which generated the income taxed at the beneficial Patent Box rates.  R&D expenditure undertaken by the company or subcontracted to third parties will be used as the measure of substantial activities.

The consultation document also details the proposed transitional arrangements for the existing Patent Box regime. It is currently proposed that the existing regime will be grandfathered for five years and will cease on 30 June 2021  The existing regime will be open to new entrants with eligible patents filed by 30 June 2016.  We recommend that companies file patents as soon as possible to ensure that they can benefit from the existing regime.

Please see link to the consultation document for further information:

The consultation period closes on 4 December 2015 and the draft legislation will be issued in December based on the responses to that consultation. The responses to the legislation will be published in Spring 2016 together with amendments to the draft legislation, as required.

Henderson Loggie will be assessing the potential tax impact of the proposals contained in the Consultation for our clients and would be pleased to advise on these.

For further details please contact Barbara Walton.