Firms hear about historic change to product development

Lindsay Pentelow, partner at Mazars
Lindsay Pentelow, partner at Mazars

Companies should consider how to take advantage of tax rules on product development, a seminar in Milton Keynes heard.

A new tax regime will be phased in from April 1 2013 to April 2017, eventually reducing corporation tax from 22 to 10 per cent for UK businesses involved in product development, delegates were told at accountancy firm Mazars.

Lindsay Pentelow, partner at Mazars, based in The Pinnacle, Midsummer Boulevard, said: “I don’t think companies yet recognise just how broadly the Patent Box tax relief will be applied.

“This is an enormous opportunity for organisations ranging from start-ups to global organisations across the product design, manufacturing and technology industries. We are helping companies check that they have the accounting systems in place to capture the information that will enable them to calculate and apply for this dramatic tax relief.”

Patent Box will run alongside existing R&D tax credits and will increase the number of organisations that may benefit from tax relief, including those involved in product design, management and manufacturing.

Andrew Mackenzie, principal at joint seminar presenters Scott YorkIntellectual Property Law of St Albans, said: “Patent Box applies to companies that own European patents or hold exclusive licences to use them. If you own protected intellectual property for a small component of a larger non-patented product, or hold an exclusive licence for that component, your organisation and others in your route to market could be eligible for a dramatic tax reduction.

“For example, if a particular type of washing machine exclusively incorporates a patented chip, the tax relief will apply to the sale of the entire washing machine, rather than just the chip. This could potentially send a tax deduction ripple through entire supply chains. It changes the traditional 300-year-old business approach to patent strategy.”

He added: “Many companies should also consider patenting new developments on existing products.”

The Patent Box relief will apply to all protected intellectual property-related income including sales, licence fees, royalties, IP right transactions, infringement incomes, damages and other compensatory receipts.

Companies will have to demonstrate that they’ve had a hands-on role in developing the patented item for at least 12 months. With this in mind, management companies might consider increasing their input into development activities.