Where companies are loss making, a common assumption is that patent box is of no benefit, this is not always the case.
There are a number of reasons why the qualifying income streams may be profitable even where there is an accounting loss:
- Under nexus companies are required to stream their income (normally by product or product family). Companies may have a mixture of income streams (both qualifying and non qualifying), the qualifying income streams may result in total net relevant IP profits, providing a benefit to be gained.
- Expenses are allocated across the streams on a just and reasonable basis, there may be significant costs associated with the non qualifying income stream that are depressing profits across all products. Appropriate consideration of how costs should be allocated across the streams rather than prorating them can make a difference to whether a patent box profit or loss is achieved.
- There are a number of costs such as finance costs that are excluded from relevant IP profits, removing costs that need to be excluded can turn an accounting loss into a patent box profit.
In addition companies that have been historically loss making and have just started to become profitable may be restricted as to the amount of brought forward losses they are able to use. Where this is the case, electing into patent box as soon as they have profits will help to reduce the tax payable.
Every company’s situation will be different, if you wish to discuss whether patent box could be beneficial please speak to your local patent box contact or Vinod Keshav.
