What's in the Box? Iain Gray at MSC R&D explains why all businesses should protect the value of IP - and how it can provide a cash boost as well
Keen to improve the UK's competitiveness in the high-tech arena, the government introduced a scheme, one intended as a catalyst to achieving that improvement.
At the heart of the scheme, which is called Patent Box, is intellectual property (IP) and whilst many technology businesses would benefit greatly from the protection and exploitation of their IP, relatively few actually do.
That particularly applies to SMEs.
Why? Most likely because of a lack of understanding of the potential benefits and a fear of the perceived costs involved.
Patent Box was introduced as an incentive to companies to protect their IP, allowing them to reduce the tax rate applicable to any profits generated by patented products or services.
However, take up has been small to date (only around 700 companies in the first year) and as the process is complex, the potential cost/benefits are perhaps not easily understood on first glance.
Patent Box is a relief targeted at companies of all sizes seeking to exploit patented inventions and will allow them to apply a reduced rate of corporation tax to all profits relating to qualifying IP. It is in addition to R&D tax relief.
Without taking the first step, companies are missing the opportunity to fully exploit their IP in the medium to long term.
If your business qualifies for R&D tax relief, then it may well be that you can benefit from the Patent Box scheme in a way that generates additional cash and not cost in the short term, and lays the foundation for optimising the future exploitation of unique technology.
Currently, when many SMEs hear the word ‘patents' mentioned, they immediately associate it with throwing large sums of money at a patent attorney for a long period of time, in return for something that has little relevance to the future prosperity of their business.
However, it's more common than might be appreciated that if you're a profitable business with a patentable invention, the potential short term tax savings via a reduced rate of corporation tax can be significant. In fact, 100% of all a business's product revenues potentially are included in the computation, irrespective of how large or small the actual patented component is compared to the size and cost of the overall product.
And, by applying initially for a narrow patent, patent costs and approval lead times can be reduced and these tax savings can often be realised within a relatively short time-period, offsetting set-up costs and providing a recurring future benefit and a strategic asset for longer term exploitation.
So, what's not to like about Patent Box? It needn't be as expensive as many fear and it's a welcome contribution to R&D cash flow.
A successful strategy going forward would be to look at the potential value of your IP, not the ‘cost' of protecting it. Broadening its protection and perhaps identifying ways in which to ‘monetise' it (e.g. licensing it to organisations with established channels to market) will unlock its true value.
The truth is that exploiting the commercial value of your IP can generate financial returns far in excess of those achievable through traditional sales and marketing activity.
