Special Feature Samantha Vanags - Grant Thornton uK LLP Thinking Inside the Box to Reward Innovative UK Companies
Rewarding and encouraging innovation is critical for stimulating long term, sustained economic growth. Financial and taxation policies can play a key role here and the UK government recently revealed its ‘Patent Box’ legislation, which offers a tangible commercial incentive for companies to invest in research and development.
C
orporate tax is currently at 20% for smaller UK companies, with larger organisations paying 24%. 'Patent box' offers the opportunity for businesses to pay a reduced
corporation tax rate of 10% on certain profits. To access this lower tax threshold companies only need to register a patent for one component of a product with the UK authorities, ie only one component needs to be patented for a whole product to be covered by this lower rate of tax. An example could be a car manufacturer – provided they patent a certain component of the car, no matter how small, the whole car will be covered by the patent box.
This is a significant move as previously companies patented innovation solely to protect the technology. Now they will gain a quantifiable financial advantage from the process. It is the key to a whole new tax regime.
‘Patent Box’ will also make the UK more competitive with overseas rivals. We used to provide companies with tax relief but once these firms were receiving royalties or profits, they were taxed at a higher rate than the rest of Europe, so this is a very positive move.
Whilst in opposition, David Cameron asked James Dyson to prepare the ‘Ingenious Britain’ report exploring how to stimulate
British ingenuity. Dyson recommended an overhaul of the patent system as many innovations take place within smaller companies but the time and cost of securing patents is, for many small firms, prohibitive. Many small businesses simply don’t have the resource to patent their products in the way larger firms do and this has been stifling innovation. The ‘Patent Box’ is a positive step and since the coalition government took office, many of Dyson’s recommendations have come into force and tax relief was a key feature of this.
The ‘Patent Box’ idea is well-conceived, but companies still need to calculate their profits and fulfil a complex financial process in order to benefit from this improved tax rate. There are 4.5 million small businesses in the UK, and many of these growing firms don’t have the time to commit to this process so this could be simplified.
The government also invested in a strong awareness campaign around research and development tax credits. However our experience at Grant Thornton is that we still find companies who are unaware of the scheme.
‘Patent Box’ offers the opportunity for businesses to pay a reduced 10% rate on the profits from the patent.
There are still elements of this scheme to develop.
The UK has a proud heritage of innovation and there are many elements that will help retain and build upon this. Skills, training and educational structure play a part; funding and investment is also critical and tax incentives and rewards are an important step. The ‘Patent Box’ offers real rewards for business and this policy can be streamlined to support growing businesses with great ideas even more.
By Samantha Vanags, Tax Partner and Head of Research and Development and Patent Box, Grant Thornton UK LLP
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