Government launches consultation on patent box tax

The government has published consultation documents on the patent box and the research and development tax schemes announced in the March budget.

The government hopes both these consultations will be a step towards making the UK's tax system more competitive in the global market.

Chancellor George Osborne announced at the time that profit generated from patents would see a 10 per cent corporation tax rate from 1 April 2013 – this will be reduced from the standard 26 per cent.

The research and development tax credits consultation aims to simplify the system by, among other things, changing the rules to extend the credit to include the costs of more contract workers.

The consultations are aligned with the government's pledge to create a high-tech manufacturing economy, as reiterated in the March budget, because it is widely believed that the UK system has become less competitive, leading to pressure to locate elsewhere.

The document is looking to clarify which patents and associated IP types should be eligible for the patent box; what other types of income should be eligible, if any; and how the regime will interact with others, such as group loss relief, chargeable gains, double tax relief and transfer pricing regimes. It will also look at potential anti-avoidance rules.

In addition, the government is looking to pilot a process that will allow small companies and start-ups to find out which projects qualify for the credit at an early stage in their development to assist in planning.

Those who want to participate in the consultation can find the patent box consultation paper here and the research and development tax consultation here.

The consultations will close on 2 September 2011.