The Patent Box - how is it shaping up?

The draft legislation for the Patent Box was published on 6 December 2011, just under two years after its introduction was originally announced and following two consultations which have helped to shape the detail of the provisions.

The draft legislation is in accordance with the broad principles expressed in the consultation, although the legislation now provides for the introduction of the regime to be phased in, with 60% of the full benefit being allowed in the first year. The percentage of the full benefit which is available will increase by 10% each year until the full benefit is available from 1 April 2017.

From 1 April 2013, companies who own or license-in a patent or any of the other limited qualifying intellectual property rights and who have created or significantly contributed to the creation of that patented invention or products incorporating that patented invention will be able to elect to enter the "Patent Box" regime. By making such an election, the company will, subject to the phasing in of the regime, ultimately benefit from the application of an effective 10% rate of corporation tax to profits which qualify under the regime.

The Government acknowledges that the formulaic approach generally adopted results in an approximation of the Patent Box profits to which the regime will apply, but views this as the price for certainty and as the means for reducing the administrative burden in applying the regime. In addition, the draft legislation permits companies to choose a more tailored approach to the calculations.

The draft legislation is open for consultation until 10 February 2012. If you would like to discuss how the proposals may affect you, please let us know.

Read our analysis of the proposals.

Lawyers Nikol Davies, Michelle Williamson, Peter Jackson, Robert Young