What is an innovation Box?

The innovation box is part of your corporate tax return. In it, you list the profits you make from one or more innovations that your company did the R&D for. You pay 7% corporate income tax over the profits listed in the innovation box, instead of the normal 25% .

What is a patent box tax regime?

The Patent Box regime is a generous tax incentive introduced in 2013 to encourage innovation in the UK. The regime broadly offers an additional deduction in calculating taxable profits, with the effect that the relevant intellectual property profits are taxed at a reduced corporation tax rate of 10%.

How do patent boxes work?

But what is a patent box? A patent box is a tax measure that provides special tax treatment for profits generated from intellectual property (IP). They theoretically encourage businesses to hold IP onshore, instead of offshoring it to jurisdictions where tax rates are lower.

Why is it called patent box?

The ‘patent box’ tax incentive, named after the ‘patent’ box that you tick in your tax return, allows companies to pay a lower tax rate on income generated through the commercialisation of patented technology. The idea of a patent box is not new, and was considered by the Federal Government in 2015.

How is RDEC calculated?

To calculate your expenditure you need to:

1. Work out the costs that were directly attributable to R&D.
2. Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.
3. Add all costs together.
4. Multiply the figure by 13% to get the expenditure credit.

How do I claim Patent Box tax relief?

To benefit you need to be a UK limited company paying UK corporation tax. You need to have developed an innovative product or process, filed a patent application, and generated profits relating to the patented invention. The innovation does not have to be rocket science to be patentable.

How are patent boxes calculated?

To calculate the Patent Box deduction, we use the formula given in the legislation; Relevant IP profits (RP) are multiplied by the main rate of Corporation Tax (MR) minus the special rate of Corporation Tax (IPR, ultimately 10%) divided by the main rate of Corporation Tax i.e.

Can you group relief RDEC?

The credit can be surrendered in whole or part to any group member. The credit can be used to discharge any other company liabilities, like VAT or liabilities under a contract settlement. The final amount can be paid to your company.

What is the level of RDEC available?

From the 1 January 2018 the RDEC rate was 12%. This was increased to a rate of 13% from 1 April 2020. It is given as a taxable credit on the amount of qualifying R&D expenditure payable as cash or as an offset against the company’s corporation tax liabilities.

How is Patent Box deduction calculated?

What is Nexus fraction?

The nexus fraction was designed to ensure that only companies that are engaged in ‘substantial activities’ in relation to the IPR qualify for favourable treatment. The nexus fraction is the lower of 1 and the following: (D + S1) x 1.3. D + S1 + S2 + A.

Can you group relief R&D losses?

3. Loss reliefs. If you are loss-making after your R&D tax credit claim, you can elect to carry back the R&D enhanced loss to the prior year if you were previously profitable. Alternatively, you can carry it forward and offset it against future profits, or surrender it for group relief.

How is the new innovation box regime calculated?

The new Dutch innovation box regime is in line with the OECD’s so-called ‘modified nexus approach’. Under the modified nexus approach, qualifying profits that benefit from the new innovation box regime are calculated as follows: (Qualifying expenditures / Total expenditures) x overall income from ip asset = income receiving IP benefit

When was the innovation box introduced in the Netherlands?

The innovation box regime in the Netherlands was first introduced in 2007. The innovation box regulations in the Netherlands allow companies to have profits derived from (qualifying) IP taxed at an effective 5% corporate income tax rate (instead of the regular corporate income tax rate of 20 to 25%).

What makes a company eligible for the innovation box?

The innovation box is applicable if at least 30 per cent of the profits have been originated by the patent. Companies that have incurred certain qualified research and development (R&D) costs for the development of intellectual property (IP) for which no patent was granted are also entitled to the favourable effective tax rate.

How much tax do you pay on innovation?

You pay 7% corporate income tax over the profits listed in the innovation box, instead of the normal 25% . You can use the innovation box for more than one innovation. Note: in 2021 the tariff will increase to 9%. To fill in the innovation box, you need to calculate how much profit you make from an innovation.