The Treasury has announced plans to extend the £1 billion Patent Box initiative and simplify the R&D tax credits system in a bid to boost the UK's competitiveness as a life sciences destination.

Under the Patent Box scheme, a 10% corporation tax rate will be applied to profits derived from all active patents from April 2013, in a move which the government says will provide and incentive for companies in the UK "to retain and commercialise existing patents and to develop new innovative patented products". 

It was originally proposed that only patents commercialised from the end of November last year would eligible for the scheme, but in response to industry concern that freezing out existing patents would offer companies no incentive to maintain them, the scope of the scheme has been widened to include all patents that are active.

However, in order to help manage the financial implications of this change the Treasury is proposing a stepped introduction of the new tax arrangements over five years, with 100% of the benefit only becoming available in 2017/18.

In addition, the government has also decided not to extend the Patent Box to other forms of intellectual property such as copyright and trademarks, noting that it continues to believe that "lower tax rates for all will usually be the fairest and most cost-effective way to foster economic growth, other than where there is strong evidence that action needs to be taken to make the UK tax regime more competitive".  

R&D tax credits update

The new proposals for the scheme were published alongside a second consultation document outlining plans to simplify the R&D tax credit system, which is designed to encourage small companies to invest in new technology development.

R&D tax credits already provide nearly £1 billion of support to over 6000 companies, but it is the government's intention to help more companies take advantage of the benefit and provide greater certainty to small and start-up companies about what costs qualify for the credit.

Under plans to make the system even more beneficial to companies, the government plans to remove the £10,000 per year that must be spent on qualifying R&D to be eligible for the credit.

Also included is a new commitment to consider proposals to move from the current superdeduction to a system which reduces a company’s final tax liability rather than its taxable profits, otherwise known as an ‘above the line’ tax credit system, which supporters of the idea argue would deliver a better incentive effect for little additional cost.

“A credit that reduces the cost of doing R&D rather than tax will have a much greater impact on decisions about whether to locate more R&D in the UK," said Diarmuid MacDougall, PwC R&D network leader, commenting on the plans, which, he stressed, is "important for jobs, skills and our future economic prosperity”. 

“This government is committed to putting in place the most competitive tax system in the G20 and we particularly want to make the UK an attractive location for innovative industries. The Patent Box and R&D credits help us create the best possible environment for this," said David Gauke, Exchequer Secretary to the Treasury. 

"Through both of these measures, the government aims to support innovation and productivity in the UK and allow companies which further these to prosper", he added.