Don't miss out on patent opportunity: April will see the introduction of lower corporation tax on profits from patented products and services.

AuthorWallin, Nick
PositionTechnical notes

The incoming UK Patent Box legislation represents an opportunity for banks and other financial services companies to benefit from a potentially lucrative form of tax relief by gaining patent protection for their back-office systems.

When the legislation takes effect in April, it is not just the profits from patented products that will qualify for the lower corporation tax rate of 10 per cent, it will be the profits from the use of patented services too. Despite this, relatively few banks and financial services companies have considered seeking patent protection for their systems and they could miss out on a significant reduction in their tax liability as a result.

With significant budgets set aside to develop their IT, many companies have invested heavily in refining their back-office systems over a number of years. However, remarkably few have opted to seek patent protection for their work to date, preferring to keep them a secret instead.

The introduction of the Patent Box could be about to change this, as profits from patentable services will qualify for tax relief for the first time.

To benefit, companies in the financial services sector will need to start by identifying which technical aspects of their back-office systems are patentable, and in most cases it would be worthwhile applying for as many patents as possible. The types of technical improvements that are most likely to be patentable include high-speed processing techniques, high-speed networks or other communications-related systems, large-scale data storage systems, encryption and other security aspects, to name but a few.

A good rule of thumb as to whether a technical invention might be patentable or not is to consider whether it might be applied in another field of technology. Clearly, all of the above examples could potentially find some use in another area. On the other hand, business-specific ideas, such as trading models and systems used for calculating derivatives, are unlikely to be patentable because they are regarded as "business methods" and are likely to be excluded from protection under UK patent law.

Once the patents are secured, a company has a number of choices to make that could affect the amount of profits that qualify for tax relief. In order to optimise the financial benefit for the business, it will be necessary for IT development and tax teams to work closely together, drawing in specialist support from professional advisers where appropriate.


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