For the first time ever, HMRC have independently reviewed the Patent Box scheme to understand if it is an effective tool in the government R&D agenda or if it needs to scraped.
Confounding the critics of the Patent Box scheme
Critics of the scheme say that it is used for profit shifting and tax mitigation instead of encouraging the commercialisation of R&D in the UK. But the HMRC evaluation suggests that Patent Box has had a positive impact on business investment.
It is good news to see that there is a 10% increase in investment thanks to Patent Box. This is the first clear and direct correlation to the effectiveness of the scheme, yet there is a bigger problem here.
Smaller sample than the R&D tax relief scheme
The sample is too small so true analysis cannot take place. When we look at the equivalent R&D review, we can accurately assess the spillover affect and the indirect impact of R&D – once again, for every £1 spent foregone in tax we see a return of between £1.75 and £2.28 for SMEs and an even greater return for larger businesses under RDEC.
UK should be an IP powerhouse
What this review should do is force the core questions that can help turn the UK into an intellectual property powerhouse:
- How do we incentivise more focus on IP?
- How does government support the cost of patent assessment?
- How do we create a more responsive patent system?
- How do we increase incentives available to better reflect all types of intellectual property assets?
Looking to Europe as both inspiration and competition
We can look at our European friends in the Netherlands at the Dutch Innovation Box who have a scheme that is greater in scope and evidence that underpins the importance of this incentive.
Let’s be clear, whilst they are friends they are also competition on the global stage. If we really want to build back better, not just after Covid-19 but as an independent trading nation, we can ill afford to be behind the curve when it comes to research and development.
When you look at the intent of the policy, the general view is Patent Box schemes will stimulate R&D which is true. The UK takes a slightly different view and says we can stimulate R&D through R&D tax and direct funding deployment through grants. What Patent Box must do is make sure that those assets are then created in the UK. Instead of being lured away to cheap manufacturers or workforces, Patent Box should keep the capital spend, employment, and upskilling of highly skilled jobs in the UK.
Patents should be about prosperity, not protection
But right now, not enough businesses take intellectual property seriously enough to have meaningful data to help inform this agenda, and this needs to change.
So, this is the wake-up call. We need to bang the drum to promote the value of intellectual property and change the narrative, it’s not about protection – it’s about prosperity.