Tax reduction on patent profits could ‘turbo-charge’ holders

A Government plan to cut taxes on profits from patents to boost UK innovation, manufacturing and job creation could help to revive struggling firms.

The proposed legislation to cut tax on profits from patents – normally charged at the applicable corporation tax rate – to 10 per cent could encourage more firms to innovate, according to John Sykes, a director at law firm Lupton Fawcett, which has offices in Leeds and Sheffeld.

Chancellor George Osborne referred to the proposed scheme – known as the Patent Box – in the Budget, and the Government is now considering its introduction early next year.

Mr Sykes said yesterday: “While a patent cannot single-handedly turn a bad business proposition into a good one they can commercially ‘turbo-charge’ a product or service with clear benefits and market demand. A patent is a mini monopoly, so this can then generate greater sales and profit margins.

“The Dyson vacuum cleaner (which was devised by James Dyson) concept was brilliant and caught the public imagination. The company’s various patents, trade marks and design rights enabled it to fight off competitors to protect its market share and margins and then to licence the technology to other manufacturers.”

The Government’s proposal will allow businesses to elect to apply a 10 per cent corporation tax rate from April 1 2013 for all profits attributable to qualifying intellectual property (IP).

These include patents granted by the UK Intellectual Property Office (IPO) and the European Patent Office (EPO), as well as supplementary protection certificates, regulatory data protection and plant variety rights.

The Patent Box will apply to existing as well as new IP, and to acquired IP provided that the applying business has developed it or the product that incorporates it. The scheme may also be extended to other EU states with similar patent rules. A list of these states will be published later this year.

Mr Sykes, who also trained as a patent agent, said: “This is a bold initiative which means businesses must focus upon innovating, filing patents, and developing and manufacturing in the UK.

“The scheme may well attract big businesses into the UK for research and development and manufacturing which will create jobs and more tax revenue, even if at a lower rate.

“The Patent Box might also create a market for UK patent portfolios or substantially increase their value.

“This is a good initiative which could work well. Businesses should take time to understand patents and develop a strategy on how to get them and the costs of ownership as well as the benefits.

“It could boost their earnings or simply help with survival.”

Lupton Fawcett employs more than 240 staff, including 120 fee earners.

The firm has achieved rapid growth through acquisition in recent years. In January 2009, it acquired the traditional commercial and private client business of Leeds-based firm Fox Hayes.