As previously reported on IPcopy, HM Treasury and HM Revenue and Customs are currently running a consultation on proposed changes to the UK Patent Box scheme. The consultation runs until this Friday (4 December 2015) and the consultation document, which includes some background on the existing Patent Box scheme, can be found here.
The main change proposed in the consultation is the use of R&D expenditure as a proxy for “substantial activities”. A so called “nexus fraction” will then be calculated in which a company’s own R&D expenditure on the IP in question plus any subcontracted R&D expenditure to an unrelated party (these figures together forming the “qualifying expenditure”) will be divided by the qualifying expenditure plus any R&D subcontracted to a related party plus acquisition costs.
Companies who have developed their own IP are likely to have a nexus fraction of close to “1” and so will essentially be unaffected by the revised rules. However, company’s which have acquired IP will see nexus fractions of <1 which will therefore reduce the income which qualifies for the new Patent Box.
Although the main change is the use of R&D expenditure as a proxy for substantial activities it is noted that the proposed changes will also have some other fairly noticeable effects, namely:
- the proposed changes will require more detailed record keeping from 1 July 2016 even if a claim is unlikely to be made for a number of years
- the changes will have a bearing on how R&D activities are undertaken if personnel sit within different companies within a group
- Transactions (licensing and acquisitions/disposals) from 1 July 2016 will be impacted
- Any reorganisation of IP or R&D activities within a group will be impacted from 1 January 2016
Companies are encouraged to submit comment directly to HMRC as it is contribution from business that they are particularly keen to receive and this is typically limited to a handful of very large claimants. Comment can be restricted to one or two points of concern rather than a full blown response and analysis of the proposed changes.
Responses should be sent by 4 December either in writing to: Patent Box Consultation Team, Area 3/63, HMRC, 100 Parliament Street, London SW1A 2BQ
Or by email to: firstname.lastname@example.org
Mark Richardson 1 December 2015