Introduced in 2013 to encourage R&D investment, the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents
Last year, the Patent Box scheme saved businesses £875m in corporation tax, up 17% from the previous year’s £750m.
Introduced by the government in 2013 to encourage more businesses to invest in in research and development (R&D), the scheme allows UK businesses to pay only 10% corporation tax on profits derived from any UK or certain EU patents.
Following objections from some EU member states that the break did not comply with state aid rules, in 2016 the EU imposed changes that made the scheme more bureaucratic, reducing its attractiveness to businesses. However, Brexit now provides the government with the opportunity to remove EU red tape and make the tax break even more effective, according to top 10 firm Moore Stephens. The UK’s exit from the EU also presents an opportunity to introduce similar tax breaks to further incentivise UK businesses to invest in R&D, thus helping the UK to maintain its position as a hub of innovation post-Brexit. According to OECD data, UK businesses currently invest only 1.7% of GDP on R&D, which is two-fifths less than the OECD average.
Steven Levine, partner at Moore Stephens said: “Brexit represents a real opportunity for the UK to give R&D investment a shot in the arm by a sensible stepping up of tax breaks. Tax breaks in areas like R&D should then be able to feed through to a higher overall tax take from improved corporate profits and a higher corporation tax take.
“A more attractive Patent Box tax break will also encourage more European companies to shift R&D jobs to the UK post-Brexit, thereby increasing employment within the UK and consequent tax receipts through PAYE and NIC.
“To make the Patent Box more efficient in driving innovation, the government could simplify the application process and reduce the requirements to qualify, as well as introducing other incentives to help businesses compete internationally, such as the increased administrative requirements that were introduced on the back of the recent changes.
“There were promising signs in the Spring Budget that the government intends to make administrative changes to the R&D tax scheme. Hopefully this will be extended to the Patent Box too.
“For now, the Patent Box in its current form is here to stay. The good news is that, despite its shortfalls, businesses can make significant savings through the scheme.”