1. Corporation Tax rates and reliefs
In UK the income tax rate is currently 20%. UK companies may be able to get deductions or claim tax credits on their Corporation Tax. These are known as reliefs.
1. Allowances and reliefs
UK companies can deduct the costs of running their business from their profits before tax. Anything their employees get personal use from must be treated as a benefit.
Some expenses aren’t allowed for Corporation Tax, eg entertaining clients.
B.1 Capital allowances
Capital allowances is admitted if the company buys assets that it keeps to use in its business, eg:
- business vehicles.
B.2 Patent Box
The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from their patented inventions. The lower rate of Corporation Tax to be applied is 10%.
Who can benefit
UK companies can only benefit from the Patent Box if are liable to Corporation Tax and make a profit from exploiting patented inventions.
The company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.
If the company is a member of a group, it may qualifies if another company in the group has undertaken the qualifying development.
Which patents are eligible
The company can benefit from the Patent Box if it owns or exclusively licenses-in patents granted by the:
- UK Intellectual Property Office;
- European Patent Office;
- following countries in the European Economic Area: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, Sweden.
The company or another group company must also have undertaken qualifying development for the patent by making a significant contribution to either:
- the creation or development of the patented invention;
- a product incorporating the patented invention.
Groups of companies
If the company is a member of a group, it must also actively own the patented invention by taking a significant role in managing its whole portfolio of eligible patents.
Exclusively licensing-in patents
Patent holders may wish to license their inventions for others to develop. If the company holds licenses to use others’ technology it may still be able to benefit from the Patent Box. But to do so it must meet all of the following conditions. It must have:
- rights to develop, exploit and defend rights in the patented invention;
- one or more rights to the exclusion of all other persons (including the licensor);
- exclusivity throughout at least an entire national territory.
Also, the licensee must either be able to bring infringement proceedings to defend its rights or be entitled to most of the damages awarded in successful proceedings relating to its rights.
Income earned from exploiting patented inventions
Not all of company profits may come from exploiting patented inventions. To be relevant IP (intellectual property) income, it must come from at least one of the following:
- selling patented products;
- licensing out patent rights;
- selling patented rights;
- infringement income;
- damages, insurance or other compensation related to patent rights.
The company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool.
The full benefit of the regime is phased in from 1 April 2013. The company needs to apply an appropriate percentage to the profits it earns from its patented inventions. The appropriate for each financial year are:
- 1 April 2015 to 31 March 2016: 80%
- 1 April 2016 to 31 March 2017: 90%
- from 1 April 2017: 100%
B.3 Other reliefs
UK Company may be able to make a claim for:
- Research and Development (R&D) Relief;
- reliefs for creative industries (CITR) if the Company makes a profit from theatre, film, television, animation or video games;
Disincorporation Relief if the Company closes and its shareholder become a sole trader, ordinary business partnership or limited partnership.
Author: EMILIO MENEGHELLA