Patent Box - an opportunity not to be wasted

DAVID GAUKE, exchequer secretary to the Treasury recently provided an overview of the incoming Patent Box legislation for Financial Director magazine.

As the Patent Box regime is now in force, it is good to see a government figure step up to promote the legislation and the benefits it will bring for businesses that own technologies protected by UK or European patents. As a form of tax relief that specifically benefits innovative and R&D-led businesses of all sizes, Patent Box is in many ways a first. Therefore, the opportunity it presents to boost UK competitiveness and attract inward investment must not be wasted.

Gauke’s comments are certainly worthy of closer scrutiny by FDs and CFOs if they want to be informed and equipped to make the most of the Patent Box regime. After all, those with senior financial management responsibilities are best-placed to influence operational decision makers and support an organisation’s overall approach to intellectual property (IP) protection.

Gauke says that Patent Box ‘could make Britain a world centre for hi-tech enterprises’. This is a big ask for what is essentially a new form of tax relief, but I believe it is realistic. After all, corporate interest in protecting innovation, on both a domestic and international basis, is at an all time high. Taking this into account, alongside the Institute of Fiscal Studies’ estimate that the benefits brought about by Patent Box could lead to a doubling in the number of patents held in the UK, Gauke’s original statement doesn’t seem that far-fetched.

It is early days, however, and the Patent Box regime has only just gone live. As with any new form of legislation, time must be allowed for tweaks and updates to ensure it is robust. Of course, the Government will be seeking to block any tax avoidance that may arise in the early stages, but businesses will be hoping for further, detailed guidance on the eligibility of profits from patented inventions.

Within many organisations, FDs and CFOs are already playing a significant role in influencing operational decision makers about revenue generation strategies linked to their patented inventions – licensing agreements with third parties, for example. They also oversee the annual payments required to maintain and secure the company’s patent portfolio. This puts FDs and CFOs in an ideal position to endorse the use of patent protection, based on a clear understanding of the value of the profits generated by patented technologies and the amount of tax relief that can now be leveraged.

However, even for the most IP-friendly financial decision makers, the introduction of Patent Box means there is still scope to do more to encourage investment in innovation.

If some R&D activity is currently being carried out overseas, for example, it may be worth rethinking this. The reduced tax liability that now applies to profits generated by such investment activity, when it is backed by a UK or European patent, is well worth championing. This could be sufficient to persuade some corporates to relocate their R&D activity in the UK.

And Patent Box isn’t the only factor that CFOs and FDs should be considering when taking such decisions. As Gauke has pointed out, Patent Box should be considered in the context of wider corporate tax reform. In his recent budget statement, the chancellor announced plans to reduce the headline rate of corporation tax to just 20% in 2016 – the lowest rate in Europe and the G8. When seen together, these measures will help ensure that Britain is seen as an attractive place in which to invest and do business, which can only be good news for the UK economy.

By seeking to promote Patent Box, the Government is sending a positive signal to businesses – telling them that their continued investment in innovation is supported and is key to the UK’s economic future. However, much now needs to be done from an operational perspective to ensure the new tax regime is both workable and has the desired effect.

Karl Barnfather is chairman of Withers & Rogers, a firm of patent and trade mark attorneys