HMRC SHOWS PATENT BOX UNDERCLAIMED


Caroline Hawkins
16 January '24

3 minute read

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Whilst R&D tax relief continues to receive an unprecedented level of scrutiny, with recent and forthcoming changes to the regime dramatically reducing the rate of relief available to SMEs another valuable corporation tax relief is being underclaimed.

According to the latest stats from HMRC many companies aren’t taking advantage of the tax relief available for innovative companies, Patent Box. Whilst Patent Box operates differently to R&D tax relief, eligible companies can elect to pay corporation tax at 10% on qualifying profits rather than the standard rate of 25%. This leads to significant cash savings. With the rate of R&D relief reducing, perhaps it’s time for more companies to consider Patent Box as an option.

HMRC STATISTICS

The latest figures released by HMRC cover the 21/22 tax year and, whilst not yet final, these give a good indication of the current state of play. The stats show:

  • An estimated 1,510 companies elected to benefit from Patent Box within this period, a 6% reduction on the prior period.
  • 24% of claimants were classified as ‘large’ and these companies received 94% of the relief claimed.
  • The top 275 claiming companies (by value of claim) accounted for more than 97% of the relief.
  • The value of relief claimed increased to £1,363 million, compared to £1,196 million in the tax year 2020 to 2021. This was a result of large companies claiming more relief on average.
  • Around 44% of relief was claimed by companies in the Manufacturing sector, with this sector representing over half of all claimants.
  • The largest amount of relief was claimed by London-based companies, receiving 44% of the total relief.

RELIEF UNDERCLAIMED

These statistics suggest that the relief is still largely underclaimed. There have been over 70,000 patents belonging to UK applicants granted by the UK Intellectual Property Office and almost 30,000 by the European Patent Office between 2013 and 2022. Although some of these may belong to individuals, it’s reasonable to assume that a significant proportion of these applicants were companies eligible for Patent Box. Despite this, only 1.5k companies claimed relief in the 2021 to 2022 year. This implies that there are many eligible companies that are not claiming.

Compare the number of Patent Box claimants with those claiming R&D relief – £7bn of R&D relief was claimed by 90,315 companies in the 2021 to 2022 year. Many companies claiming R&D relief aren’t aware of the additional benefits available under the Patent Box regime. Yet many of these companies are likely eligible to patent their innovative work.

We encourage all our R&D clients to consider the potential for patenting the technology they are developing. Our team of Patent Box experts work with our clients to advise on all aspects of Patent Box relief from establishing eligibility through to submitting the claim to HMRC. We can even put you in touch with patent attorneys to help you on your journey to a claim.

If you are one of the many companies currently claiming R&D relief, but you haven’t considered Patent Box, or maybe it’s not something you’ve looked at for a while and you would like to explore the possibilities in view of the increased benefit going forward, do get in touch. After all, you wouldn’t want to miss out.