A long awaited report into tax credit relief was pretty much guaranteed to make waves because of its forthright views. The Institute for Public Policy Research did not hold back when it released its findings into the extra revenue that firms can access for carrying out research and development.
But what many people overlooked was the IPPR’s verdict on the Patent Box scheme. The think tank went as far as calling for the scheme to be phased out in its recent publication.
Despite the criticism the success of Research and Development Tax Credit Relief means many small and medium sized enterprises (SMEs) are already fully aware of the many benefits of the scheme. It is a valuable source of revenue and 83 per cent of claims currently come from the SME sector – with the average claim worth more than £61,000.
But its close relative – The Patent Box Scheme – does not have the same profile or popularity with SMEs. In simple terms any business can apply to pay the lower 10 per cent rate of corporation tax on profits earned from products or services where a patent has been used. The idea is to encourage businesses to innovate and to introduce new working practices and methods.
In 2015 just over 800 firms applied for funding under the Patent Box scheme and 95 per cent of the tax relief claimed went to larger businesses. The reality is that many SMEs are not taking advantage of the available funding stream, possibly because of unfounded concerns over the time and costs involved.
When people think of patents they start to worry about expensive fees and time-consuming bureaucracy. But it should be remembered that the long-term benefits to the business are simply too good to be ignored. The use of any patent, no matter how big or small, can result in a significant tax benefits for any businesses.
It is also well worth noting that there are plenty of reasons for a business to apply for a patent in terms of reputation and standing in its chosen sector. And intellectual property can be just as valuable to a business as other more tangible assets.
There is no doubt that Patent Box can work for SMEs and can be a useful tool for any business that it looking to grow and expand.
In fact the issue does not lie with the scheme but with the misconceptions surrounding it. And that is not a good enough reason for getting rid of the current system.