beyond accounts

Thinking inside the Box -Maximise your Assets through

the Patent Box

Presentation by

Plus Accounting & Dehns

beyond accounts

Introduction

Introduction to today’s presentation speakers;

• Peter Hedgethorne, Director at Plus Accounting

• Karen Oliver, Tax Manager at Plus Accounting

• Barbara Rigby, Patent Attorney at Dehns

beyond accounts

What is the Patent Box

• A gift from the treasury

• UK tax incentive designed to encourage innovation

• Patent required

44

Getting Into The Patent Box

Dr Barbara RigbyChartered Patent Attorney

European Patent Attorney

Brighton Office

84-87 Queens Road

Brighton BN1 3XE

5

• Stop competitors

• License revenue

• Attract investment

• Marketing tool

• Tax relief

How can a patent benefit your

business?

6

Getting into the Patent Box

• Patents - a brief introduction

• What are they

• What can be patented

• How to get a patent

• Patent box requirements

• Examples

• Take home messages

7

Patents – in a nutshell

• Protect technical inventions

• A monopoly right

• copying not relevant

• Right to stop, not right to do

• Protect inventive concept

• not just a particular example

• Automatically published

• Last up to 20 years

8

What can you patent?

• Anything new which gives a technical

advantage, e.g.:

• brand new product or material

• improved design for an existing product

• cheaper, stronger, lighter

• easier to make, transport, recycle

• improved software for a device

• better speed, display quality, battery life

• Improved/alternative manufacturing process

9

What cannot be patented

• Anything that is already known• publication (written or oral)

• sale of products

• Ideas• Mere ideas without a technical solution

• Broad concepts (invitation to carry out research)

• Non-technical subject matter • scientific or mathematical discovery, theory or method

• literary, dramatic, musical or artistic work

• a way of performing a mental act, playing a game or doing business

• the presentation of information

10

Do you have an invention?

• Must be new• Includes self-disclosure!

• Internet search can be helpful

• Must be inventive• A non-obvious change

• Don’t rule out small changes

• “that’s smart” not “wow, that’s amazing!”

• Need sufficient information and/or data

• Seek advice

11

Examples

• Nail file GB2495705

• Packaging GB2480145

• Wheel clamp GB2483109

• Method and system for filling food

pouches GB2500335

• Crumb (for coating food) EP2387889

• Motion-sensor controlled light GB2480926

12

How can you get a patent

• Prepare patent specification

• Text explaining invention

• Drawings can be helpful

• Claims denote scope of protection sought

• File at patent office and pay fees

• Address any objections raised by Patent

Office

• Patent Attorneys can guide and assist you

13

Timelines and costs

• Traditional route for international

monopoly

• Extensive cover and flexibility

• Potentially drawn-out and costly

• Significant scope for controlling costs and time scales

• UK patent for patent box• Much faster and cheaper

• Discuss your needs before proceeding

14

Priority

Filing

Start

International

(PCT) Filing

12 months 18 months

Europe

US

Australia

Canada

Japan

China

India

30 months

Grant

3-8 years

Publication

International Phase

Preliminary Search and Examination

National Phase

Search and Examination

National

Phases

££ ££ £££ £££

Costs depend heavily on number of countries selected

Developments

can be added

into application

Patent application is pending.

Response to Examination Report

is optional

Patent applications are

pending. Response to

Examination Reports

is mandatory

Enforceable

rights

// //

Traditional route

15

Patent Box (UK only) route

Filing

Start 18 months

Grant

e.g. 2 years

Publication

Search and Examination

Request combined Search and

examination at filing dateRequest early

publication

16

Patent box requirements

• Mainly UK or European patent• some other national patents

• a few non-patent rights also qualify

• European patents granted by the EPO• all EU countries and several others available

• typically slow, >5 years

• UK patents granted by the IPO• can be much faster, 1-2 years or less

17

Patent box requirements

• Need a patented item or process to get into the box• not designs, trade marks, confidential information

• claim benefit only when granted

• but elect earlier and back-claim for up to six years while pending

• Benefit stops if patent lost• but no requirement to repay

18

Global reach

• Once an item or process is ‘in the box’,

profit made on it anywhere in the world

can potentially count

• No need for patents where profit is made

• but often justified by competitive advantages

• helps show it’s not an avoidance measure?

19

Example – Perfect Print Ltd

Perfect Print Ltd makes and sells printers

and ink cartridges• It develops a new angled feeder wheel which reduces

paper jams

• Patent in the UK only

• Global sales of new printer in the Patent Box

• Plus global sales of replacement cartridges!

20

Example – FlyBritishAero

FlyBritishAero has developed a patented

component for a flight similator• Patent in the UK only

• Pilots from FlyBritishAero and other airlines

use the simulator for training

• Fees paid by other airlines for access to simulator

(notional royalties)

• Global sales of plane tickets (notional royalties)!

21

Take home messages

• Patents offer variety of benefits including

potential tax relief

• Simple inventions may be patentable

• Review your products and processes to

identify potential inventions

• Develop a patent strategy

• Balance costs and benefits

• Be clear about priorities

beyond accounts

Who Can Claim

• Companies within scope of UK corporation tax

• Not individuals or partnerships

• But, company which is partner in a corporate partnership can claim

• No size restriction

• UK branch of overseas resident company can qualify

beyond accounts

Who Can Claim - cont’d

• Company which owns UK or European patent or has an exclusive licence thereto

• Company must have contributed to the development of the invention • Conceive invention and patent it• Acquire a patent or an exclusive license and make development

contribution

• Election required

beyond accounts

Election

• Relief is not automatically applied

• Election is required to HMRC for accounting period, within 2 yearsof end of accounting period. Probably to be made when accountsand tax return for period sent to HMRC

• Why not elect? – maybe a Patent Box loss, cost may outweighbenefit

• Election applies to all trades of company, losses to be offsetagainst profit

beyond accounts

Election – cont’d

• Group election not possible

• Election can be revoked within 2 years of end of accounting period whennot required, then have to wait 5 years for re-election

beyond accounts

Tax Relief

• Calculate income related to Patents (net of losses)

• Corporation tax rate applicable to these profits is 10% as opposed tocurrent main rate of 20% (all levels of profit from 01/04/2015)

• Arrived at by appropriate deductions from taxable profit to give tax rate of10% on relevant profit.

beyond accounts

Tax Relief – cont’d

• Phasing in – profits arising after 31/03/2017 will attract full reliefbut restricted for periods between 01/04/2013 and 31/03/2017 asfollows

Year Ended 31/03 % Relief Available

2014 60

2015 70

2016 80

2017 90

beyond accounts

Calculating Patent Box Profit

• This is the profit qualifying for 10% (or phased in) tax rate

• Not just income from patents – complicated calculation

• Calculate gross trading income (‘TI’) of company from all trading sources, calculated under GAAP (Generally Accepted Accounting Principles)

beyond accounts

Calculating Patent Box Profit – cont’d

• Calculate ‘Relevant Intellectual Property Income (RIPI):

– Sale of items covered (or partly covered) by patent

– Licence fees/royalties from patents

– Sale of patents

– Payments (damages) for infringements of patents, direct or indirect

– Notional royalties, relating to patented processes, based on amount that would have to be paid to third party to exploit the relevant IP

• Apply % of RIPI to profits of trade, AS ADJUSTED

TI

beyond accounts

Calculating Patent Box Profit – cont’d

• Adjustments are:

• R&D adjustment – to reflect prior year R&D costs as a deduction

• ‘Routine return’

• Non-qualifying IP profits (2 alternatives)

• Pre-grant profits

beyond accounts

Streaming Calculation

• Alternative method of calculating RIPI involving allocating streams of income to streams of expenses

• Can elect for use if normal method produces unreasonable results

• Mandatory in some circumstances (if normal method produces unreasonably high RIPI)

beyond accounts

Thank you for listening

Q&A Session

beyond accounts

Thinking inside the Box

Contact Information

peterh@plusaccounting.co.uk

kareno@plusaccounting.co.uk

01273 701200

brigby@dehns.com

01273 244200