The Patent Box was introduced in April 2013 with the intention of encouraging innovation among British Businesses by providing tax relief on global profits from products that have qualifying patent protection.
The scheme was launched because in the UK patent applications were low compared to other developed countries. In countries where similar schemes have been introduced (Belgium/ Luxembourg) patent applications have risen. HMRC predict that the scheme will provide £1.1 billion in tax relief by 2019.
In depth interviews were carried out with managing directors and heads of R&D of SMEs, as well as R&D experts, IP managers and tax directors in senior roles at techMark firms and MNEs. It revealed a knowledge gap between SMEs and multinational organisations when it came to patenting their innovations, with one in three SMEs missing out on big financial rewards by failing to fully protect their work. There was also a huge polarisation among SMEs in terms of product patent coverage: in approximately half of the firms interviewed, patents covered less than 10% of products, whilst the remainder had patent coverage of over 90%.
Research also revealed that in countries where schemes similar to Patent Box had been introduced in 2007 and 2008 (Belgium, The Netherlands and Luxembourg), numbers of patent applications increased over the next three years, despite a decrease in patent numbers in the UK, the USA and Japan during the same period (widely attributed to the financial crisis).
Traditionally, numbers of patent applications in the UK have been lower than in other developed countries. The Patent Box scheme aims to address this shortfall and reward R&D in UK business by offering companies lower tax rates on worldwide profits made from products with qualifying patents covering them. HMRC predicts that the scheme will provide £1.1 billion in tax relief by 2019, equalling that provided by the well-established R&D Tax Credits.
The new report provides a framework for future assessment of the success of the Government’s Patent Box initiative, which was implemented in April 2013. By establishing a set of key metrics against which patent output can be measured, it will be possible to evaluate the potential commercial impact of R&D within a company to help inform future decisions.
David Lewis, Technology Business Development Manager, Cambridge Design Partnership commented: “Our research has revealed that the Patent Box has the potential to deliver significant benefits for companies participating in the scheme. By financially incentivising patent filing it should also encourage creativity and innovation, increasing the focus on technology development to enhance the UK’s competitive advantage. Our work has, however, highlighted that the UK Government needs to work harder to ensure SMEs are aware of the scheme as larger corporations seize the opportunity. At Cambridge Design Partnership we’re keen to see a rise in the level of innovation, along with a boost to the UK skills base needed to deliver it.”
Philip Martin, Partner and Patent Attorney, Marks & Clerk, added: “Although UK companies understand that they have to innovate to stay ahead in a competitive market, many do not realise the need to protect those ideas from the competition in order to take full commercial advantage of their work. Particularly concerning is the knowledge gap between large companies and many SMEs as to the importance of patenting inventions. The Patent Box scheme will hopefully help to redress what has often been considered a national weakness, by offering businesses extra incentives to apply for patents.”
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