Patent Box: new regime: Transitional provisions from the old regime CTA10/s357BQ
If your company is not a new entrant what does this mean?
Whilst all existing qualifying IP rights are in the old regime, the guidance and computations at CIRD220100 can still be followed until 30 June 2021.
If a company wishes to claim post 2021 then to support a Patent Box computation, there is a requirement to commence tracking and tracing the relevant R&D and acquisition expenditure from 1 July 2016. This means that consideration needs to be given immediately to how the IP will be streamed, even though no R&D fraction will be applied until 2021. Guidance on streaming in the new regime is at CIRD275100 and guidance on tracking and tracing is at CIRD272000 – CIRD272200.
If any qualifying IP right regarded as being in the new regime is acquired or applied for, the company is regarded as being in the new regime. It must use the computation structure outlined in CIRD270000 onwards for the new regime from the accounting period in which the new IP is acquired or granted. Although the income from a new qualifying IP right prior to grant will not be in the Patent Box until the year of grant, companies with no other new IP income may also find it helpful to consider streaming in preparation for the amended computation required in the year of grant.
For the accounting period straddling 30 June 2016 there should be two notional accounting periods to ensure that the assets are assigned to the correct regime. The filing date remains the same – it is simply a mechanism to allocate the Patent Box assets to the correct regime.
Example: Entering the transitional provisions
The APE 31/12/16 is divided into notional accounting periods 1/1/16 – 30/6/16 and 1/7/16 – 31/12/16.
Where there is a patent pending which is introduced into the computation in the year of grant, the adjustment calculation must reflect whether the qualifying IP right was regarded as old or new in each year.
The remaining old IP is gathered into one sub-stream, which will not have an R&D fraction applied to it, but that old relevant income will fall within the streaming calculations shown at CIRD271500.
Any old IP still remaining on 30 June 2021 will be taxed under the new regime from 1 July 2021. A notional accounting period should be used to split any accounting periods straddling this date in order to incorporate different regimes within the same period.
Example: leaving the transitional period
For the accounting period straddling 30/6/21 there should be two notional accounting periods to ensure that the assets are assigned to the correct regime. The filing date remains the same (31/12/23) - it is simply a mechanism to allocate the Patent Box assets to the correct regime.
In the accounting period ended 31/12/21 there will need to be a notional split whereby after 1/7/2021 the R&D fraction is applied to the relevant IP income.