BACKGROUND

The UK Government has been keen to encourage innovation for many years. As a result, a wide variety of Government funded or supported schemes exist for providing such encouragement - be it in the form of grants, networks, or simply tax benefits.

A recently introduced example is the Patent Box, which gives tax relief for profits derived from patented inventions. Starting in April 2013, it has proved popular - the system is generous, and many companies have found the UK a more attractive marketplace because of it.

However, the UK system was scrutinised by international organisations and found to be, perhaps, TOO generous. As a result, an agreement was reached and the UK Patent Box will, from 2016, be changed.

CHANGES - AND CONSEQUENCES

The exact changes that will be made to the legislation are not yet known. What we do know is that the system will be less generous. There will probably be greater limits on which patents (and accordingly which products) are Patent Box eligible. There will also probably be some shift in the way the tax relief is calculated. At the moment relief takes tax on Patent Box eligible profits down to 10% - it is possible that there will also be some change to that.

We also know that entry into the current (probably more generous) Patent Box scheme will be closed soon. We currently have a date of June 2016 for that closure.

Furthermore, we know that the present Patent Box benefits will be terminated for companies who have entered the system. We currently have a date of June 2021 for that termination.

Accordingly, now more than ever, companies who are paying corporation tax in the UK should consider investigating the Patent Box. Entry into the Patent Box system before June 2016 is vital in order to reap the benefits until June 2021.

Once that date is gone, we will have to rely on the new scheme. Once more details emerge we will have a better feel for just how much the scheme will be limited - but for now, we should take advantage of the present system while we can.