The Patent Box scheme in engineering and manufacturing

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Gateley Capitus & Adamson Jones

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The reform of The Research and Development (R&D) tax credits scheme was announced in the Spring Statement 2022. As a result there has been much discussion around the possibility of a more generous system to continue supporting development and growth. 

UK-based manufacturing and engineering companies, who already benefit from the R&D tax credit scheme supporting the development of innovative AI, robotics, manufacturing, and design solutions, widely welcomed the news.

However, as material and manufacturing costs continue to rise, it is more important than ever for companies to find ways to maximise their profits in order to survive and thrive in a competitive and challenging marketplace. 

This is where the Government’s Patent Box scheme can really help – especially those already receiving R&D tax credits.

What is the Patent Box scheme?

The Patent Box scheme is intended to encourage companies to keep and commercialise Intellectual Property (IP) in the UK by protecting new products and processes that result from R&D. As well as the usual benefits of patent protection, the scheme also allows companies to apply a lower rate of Corporation Tax to profits earned through patented inventions. 

What sort of innovations qualify for the Patent Box scheme?

A revolutionary change in technology is not required in order to achieve patent protection. Many smaller, incremental changes to products could be eligible, provided they arguably address issues with existing products. If the product forms an integral part of a wider system, it may be possible to claim for the profit of the whole system – not just the part. It is important that companies speak to advisers as early as possible about their plans to maximise the chances of securing a patent.

Who can benefit from the Patent Box scheme?

A common misconception is that the Patent Box scheme is just for large companies. However, the Patent Box scheme can make a significant difference to small businesses too – even if they only have one or two products.

What are the benefits of the Patent Box scheme for engineering and manufacturing businesses? 

At its core, IP protection is the ability to protect products and services from being copied. However, IP can have many other positive impacts on a business alongside Corporate Tax savings.

IP protection is known to have a positive impact on share price. Larger organisations see it as an indicator of ability to sustain or increase profitability by demonstrating innovation. However, it is seen in smaller, privately-owned companies also, particularly when those companies are valued prior to sale/ exit or when they are seeking investment.

As the engineering and manufacturing sectors start to become IP heavy, companies will need to consider creating their own IP portfolio to remain credible. Applying for a patent will help provide some insight into what competing technologies have been patented already, and by who. As well as this, applying for a patent early can give companies the edge against competitors by demonstrating they are at the forefront of design and innovation. There is a common misconception that the patent application process is expensive and time-consuming. However, UK patents can be granted in less than a year under certain circumstances. 

Patent Box – an under-utilised opportunity? 

Despite the obvious benefits, there is a low take-up within the engineering and manufacturing sectors as there seems to be a lack of awareness of the benefits offered by the Patent Box scheme. Engineering and manufacturing companies who are creating innovative solutions are likely to have IP which would be eligible for Corporation Tax savings through the Patent Box scheme. However, the latest Official Statistics data from HMRC show that fewer than 2,000 companies claimed this relief. Companies that are already claiming R&D tax credits could also be using the Patent Box scheme to lower Corporation Tax rates and further ramp up profits and investments. Companies are often surprised to find out what savings they are missing out on because of lack of awareness around eligibility criteria. 

Patent Box scheme process

In recent years the Government has made more funding available to help start the process of making a Patent Box scheme claim. This includes covering the costs of IP audits to allow companies to examine what assets can be protected.

It is a good idea to appoint a professional adviser to advise on and complete The Patent Box scheme application. An experienced tax professional will be able to look at processes and help companies find missed opportunities for reducing Corporation Tax and protecting IP through The Patent Box scheme. 

Click here to read our comprehensive guide to claiming patent box relief in the UK.

How can we help?

A Patent Box claim requires both a technical and financial justification. At Gateley Capitus we can bring the claim together on your behalf using our tax specialists and technical professionals. 

Calculating the final figures for a Patent Box application isn’t straight forward and requires us to work with you to identify specific revenue streams, assess each IP right individually, look at the R&D involved, and apply a complex HMRC formula. We will ensure that a robust claim is put together using our rigorous process to identify your full benefit, whilst providing a clear justification to HMRC.

Speak to one of our team for an initial assessment or visit our Tax efficient R&D page to find out more. Even if you have not previously looked at protecting your IP, we can help.

Got a question? Get in touch.