A government tax incentive that rewards UK-patented intellectual property will be welcomed by all small businesses that invest in innovation, says a law firm.

A government tax incentive that rewards UK-patented intellectual property will be welcomed by all small businesses that invest in innovation, says a law firm.

From April 2013, the Patent Box will allow any profits from inventions that are protected by a UK (or other qualifying) patent to be taxable at a 10 per cent rate of Corporation Tax, compared to the normal rate for small businesses of 20 per cent.

Withers & Rogers says that the tax rate compares favourably with regimes in other parts of Europe.

From the government’s perspective, the regime is intended to make the UK corporate tax system more competitive and attractive to R&D-led businesses, adds the firm. In doing so, it is hoped that this will encourage them to stay and invest in the development of market-ready products, creating valuable jobs and generating profits taxable in the UK at the same time.

Karl Barnfather, partner and patent attorney at Withers & Rogers says, ‘Since it was first proposed in November 2010, the Patent Box sounded good on paper and now it is even better. The draft legislation has addressed many of the concerns raised about the regime’s competitiveness.’

Barnfather adds that for small and medium-sized businesses in particular, the arrival of the Patent Box regime should encourage them to rethink their approach to patents. ‘In the past, some smaller businesses may have disregarded patents in the belief that the time taken to obtain them – typically one and a half to four years (although the process can be accelerated) – would render them commercially worthless.

‘Under the new regime, a single patent now has an inherent value based on the tax benefit it could bring to the business,’ he says.

See also: Government launches new VC initiative