IP tax break to aid IT R&D

The planned reduction in corporate tax on UK IT firms’ income from patents and intellectual property (IP) from 28 to ten per cent has received a muted reaction from experts.

Outlined in this week’s pre-budget report, the Patent Box regime was primarily designed to help British life sciences companies compete more effectively in a global market. But it also has important ramifications for patents in the technology sector.

“It is great as far as it goes but it will have limited impact on IT,” said Niki Dixon, tax partner and head of technology at financial and business consultancy Grant Thornton. “The detail is superficial - it may have an effect on [companies developing new] gadgets, but there is not a great deal of software being developed ends up being patented.”

“As implementation is not until 2013 it is unlikely to benefit companies until 2020 at the earliest - assuming normal investment cycles return,” added Barry Murphy, tax partner and head of technology at PwC.

The proposed rules may be altered in the meantime, especially if there is a change of government, and the Treasury may have to apply a broader definition to all industry sectors before the tax reduction can have a significant effect.

Similar tax relief rules are also more favourable in other European countries, around 5 per cent in the Netherlands for example.

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