AS2016: Patent Box rules for cost sharing revised

The government will legislate in Finance Bill 2017 to add specific provisions to the Patent Box rules covering cases where research and development (R&D) is undertaken collaboratively by two or more companies under a ‘cost sharing arrangement’

The proposals are designed to 'ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way,' according to the Treasury.

The Patent Box enables companies to apply a lower rate of corporation tax to profits earned after 1 April 2013 from patented inventions.

The changes will have effect for accounting periods commencing on or after 1 April 2017.

The latest figures available for use of Patent Box show that manufacturing is the main user of the tax relief, accounting for 64% of applications for the tax break, followed by wholesale and retail, and transport.

In 2013/14, the Exchequer paid out £342.9m to companies claiming tax relief under Patent Box rules, with the largest companies receiving the bulk of the reliefs at £327.2m.

Although the tax break is seen as mainly benefitting larger businesses, small and micro businesses account for 41% of claimants of Patent Box reliefs, although their share of actual monetary tax relief is negligible at £3.9m, equivalent to only 1.2% of the overall total.

More details on the proposed changes will be available on 5 December when the government releases the draft Finance Bill documentation. There are no cost impact figures available as yet.

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