Smaller Businesses Risk Missing Out on Valuable ‘Patent Box’ 10 Percent Tax Rate

Michelle Remo, “Big 4″ observer
July 20, 2012 /

Smaller businesses risk missing out on a valuable tax break because they fear that the financial and administrative cost of claiming will be prohibitively high, warns KPMG in the UK.

And as a result, they may fail to claim a special, discounted tax rate of just 10 percent on profits arising from the exploitation of patented (or patentable) innovation available under the so-called “Patent Box” regime coming in from 1 April 2013.

nder Patent Box Express, KPMG will provide the following services with a minimum two-year commitment from the claimant:

An initial briefing session outlining how the Patent Box rules work and apply to the claimant. If we consider that claimant’s circumstances mean that they do not qualify for the tax relief, they will be advised of this at this stage for no fee

Provision of a claim calculation tool to enable the claimant to perform their Patent Box calculation

A review of the claimant’s Patent Box calculations including a post-review feedback meeting

Patent Box Express has been developed for simple claims relating to clearly identifiable qualifying revenues and made by singleton companies or, in certain circumstances, very simple groups, i.e. small SMEs. It is not appropriate for businesses not fitting this profile.

Patent Box benefits are being phased in over five years. The estimated savings take account of this and assume claims are made for FY 2013 onwards. As Patent Box benefits are fully phased in, in a steady state scenario, the savings could be higher.

Jonathan Bridges, associate partner at KPMG in the UK, and lead adviser on Patent Box claims, said: “The Patent Box regime is an extremely attractive tax break for businesses with qualifying profits. Many large businesses with significant intellectual property based profit streams are already closely examining the potential tax benefits it may bring them. But we have noticed that many smaller businesses do not appear to have considered what savings are available to them from the Patent Box’s 10 percent tax rate.”

According to KPMG, many small to medium sized businesses wrongly assume that it may not be economic for them to claim the tax breaks available under the Patent Box regime because they believe that the advisory costs they will incur and the administrative burden of filing a claim will outweigh the cash benefit.

In response to this misconception, KPMG has launched “Patent Box Express” to advise smaller businesses on making Patent Box claims under a fixed pricing model.

Broadly, the small claims route is available to companies with profits qualifying for Patent Box benefits of less than £1m in a particular 12 month claim period. Claims can be beneficial where the annual expected relevant intellectual property profits in FY2013 are in excess of £50,000.

Jonathan Bridges explained: “Small and medium sized businesses are sometimes concerned that the costs and hassle of claiming a tax relief might outweigh the financial benefits. We’ve tried to make it simpler for them to access the very valuable statutory relief (the patent box regime) under the appropriate circumstances. Under Patent Box Express, a business with relevant intellectual property profits of £100k per year could be looking at a tax saving of around £6k to £12k. If their relevant profits are £250k or more, annual savings are upwards of £30k – equivalent perhaps to an extra member of staff.”

 

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