Guest blog: The Impact of the Patent Box on the UK life sciences sector

The BIA has published a new guide to the Patent Box, developed by members of the Finance and Tax Advisory Committee and to be officially launched at the BIA Committee Summit on 22 February. Here, FTI Consulting’s Richard Turner takes a look at the impact the Patent Box has had on the UK life sciences sector.  

As the BIA launches its updated guide to the patent box, we thought that it would be helpful to share some anecdotal feedback from our experience of the regime.  Our first recollection of its impact predates its introduction in 2013.  Some 2-3 years prior to that there was a clear signal from Government that they were committed to the introduction of this new regime (although not the first, the UK can certainly credit themselves as early adopters).  At this point, many UK based life science companies who were contemplating upping sticks to Ireland or Switzerland stopped their speculation and committed to a future in the UK.  The regime had immediately fulfilled one of its primary objectives.

We have seen and helped many companies benefit from the regime.  In doing so, we have clarified many misunderstandings, come across a few unintended consequences and sought clarification from HMRC on their interpretation of a number of nuances.  These tend to materialise in the first year of claiming and thereafter the process and effort reduces significantly.  We have also helped many companies model their long term effective tax rate.  A UK life science company should question a forecast or valuation using the UK statutory tax rate.  It is likely to be significantly lower.

One of our most fulfilling anecdotes relates to a company we encouraged to elect in for 2014.  The benefit arising on its granted patents was little more than £10,000 in that year.  However, at the same time they had already applied for a patent covering new technology in a medical device that they were already selling.  That patent was granted 2 years later and the benefit from having elected in for the earlier period exceeded £2m.  

The Life Science Industrial Strategy highlights the patent box as a key component for UK fiscal competitiveness and calls upon Government to do what it can to maintain this advantage.  It is worth noting that when the regime was introduced the statutory rate of corporation tax was 23% giving a 13% tax saving for profits eligible under the regime.  With the tax rate reducing to 17% from 2020, that tax saving will reduce to 7%. 

The BIA’s guide to the Patent Box can be downloaded here.