Protecting Assets and Reducing Corporate Tax in Manufacturing

Manufacturing and innovation in the UK is booming and since the Chancellor announced the reform of research and development (R&D) tax credits in the spring 2022 statement, there have been many discussions around the possibility of a more generous system to continue to support development and growth. This news has been widely welcomed by UK-based engineering and manufacturing companies who already benefit from the R&D Tax Credit scheme, which supports the development of innovative AI, robotics, manufacturing and technology solutions. design.

But as manufacturing and material costs continue to rise, it’s more important than ever for companies to find ways to increase profits and investments to meet demand and survive in the competitive marketplace. This is where the government’s Patent Box program can really benefit companies, especially those already benefiting from R&D tax credits.

Understanding the Patent Box Regime

The Patent Box program has been designed to encourage businesses to retain and commercialize intellectual property (IP) in the UK by protecting new products and processes resulting from R&D. In addition to the conventional benefits of patent protection, the regime also allows companies to apply a lower corporate tax rate to profits derived from patented inventions.

Despite the obvious attraction, there is still a low participation rate in the engineering and manufacturing sectors. In relation to R&D tax credits, there seems to be a lack of understanding of the benefits available.

Peter Corley, Managing Partner at Gateley Capitus and Nic Ferrar, Patent Attorney at Adamson Jones, part of Gateley, explore The Patent Box program and the potential benefits for engineering and manufacturing companies.

A missed opportunity for many companies

Exploring the lack of participation and potential barriers for companies making claims, Peter Corley explained: “If engineering or manufacturing companies are designing and creating innovative solutions, they are likely to have intellectual property that would qualify. to corporate tax savings via The Patent Box scheme.Sounds simple, right?Yet the latest official statistics from HM Revenue and Customs (HMRC) show that fewer than 2,000 businesses have claimed the relief.

“If manufacturing and engineering companies apply for R&D tax credits, they could also use the government’s Patent Box program to reduce corporate tax rates and further increase profits and investments.

“So why is uptake of The Patent Box program so low when so many businesses in the UK hold patents? I think it’s the lack of understanding of what and to whom the scheme applies and the application process itself.

“Any company that designs and manufactures products could be eligible to apply for The Patent Box program. It does not have to be a revolutionary technological change to obtain patent protection. Many minor and incremental changes to products could be eligible provided they arguably resolve issues with existing products. The most important thing is for companies to talk to advisers about their plans as soon as possible so that there is always the possibility of obtaining a patent.

“And if the product is an integral part of a larger system, you may be able to claim profit from the whole system – not just the part.

“A common misconception may be that the program is only for large companies. The Patent Box program can also make a significant difference for small businesses, even if they only offer one or two products. The scheme can be applied to the smallest of innovations, as small as an additive in a type of glue applied to hundreds of products.

“I can guarantee businesses will be surprised to find the savings they are missing out on due to lack of knowledge of what actually qualifies. If companies are already claiming R&D tax credits, they should really explore The Patent Box program for other benefits.

Understand the added value and benefits for engineering and manufacturing companies

When discussing the value of The Patent Box program and intellectual property protection for engineering and manufacturing companies, Nic Ferrar said, “There really is a mixed opinion about The Patent Box program. within the industry. At its core, intellectual property protection is the ability to protect products and services from being copied, however, there are many other positive impacts on businesses besides corporate tax savings.

“Intellectual property protection is known to have a positive impact on share price. This is commonly understood by large organizations as an indicator of their ability to maintain or increase profitability through innovation. However, we also see it clearly in smaller private companies, especially when these companies are valued before sale/exit or when looking for investment.

“As the engineering and manufacturing sectors begin to become IP heavy, companies will need to consider building their own IP portfolio to maintain credibility in these sectors. As companies increasingly turn to protecting intellectual property, it’s becoming increasingly difficult to avoid bumping into someone else’s patents when developing new products. Filing a patent application yourself will help you better understand which competing technologies have already been patented and by whom. Additionally, an early patent application can give companies an edge over their competitors in the marketplace by demonstrating that they are at the forefront of design and innovation.

“In terms of potential barriers preventing companies from applying for The Patent Box scheme, the government has made more funds available in recent years to help get the process started. This includes covering the costs of intellectual property audits to allow companies to review which assets can be protected.

“Following what Peter Corley said, The Patent Box program has many advantages – even for small businesses – because intellectual property protection can help attract outside investment to realize growth and development plans. . For large companies or those entering foreign markets, the establishment of intellectual property protection is essential to ensure some control over distributors or other collaborators.

“When it comes to applying for a patent, there is a common misconception that the process is expensive and time-consuming or could take years. Recently, we have been focused on achieving a quick turnaround for our clients so they can start benefiting from the UK corporation tax relief scheme. UK patents can be granted in less than a year if we know from the outset that the tax incentive is a key factor in obtaining patent protection.

Appointing a professional advisor to advise and complete the application of The Patent Box program is becoming increasingly popular. An experienced tax professional will be able to review processes and help businesses find missed opportunities to reduce corporate tax and protect intellectual property through The Patent Box program.

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About the authors

Peter Corley, Associate Director at Gateley Capitus (1)Peter Corley, is Head of R&D at Gateley Capitus. Having held financial and business advisory positions throughout his career, Peter has an excellent understanding of financing and the incentives available. Peter has many years of experience working closely with various companies to help them achieve their goals, whether he has been successful with large multinational companies or new start-ups. He has helped companies of all sizes assess their research and development costs to see how they can benefit from tax breaks and R&D credits.

Nic Ferrar, patent attorney at Adamson Jones (1)Nic Ferrar is Director of Business Development at Adamson Jones. Nic holds an MSc in Mechanical Engineering from the University of Leeds. After graduating, Nic took on a commercial role within the engineering software industry, which involved managing accounts in the automotive, aerospace and marine industries. Nic joined the patent profession in 2003, working for a London-based private practice. Since then, Nic has also gained industry experience, at Rolls-Royce plc, where he both managed a patent litigation case and advised the company on commercial intellectual property matters.

Luisa D. Fuller