The Chancellor’s Autumn Statement on 29 November 2010 announced a consultation on some radical improvements to the tax treatment of intellectual property.

The consultation was undertaken on the proposed introduction of a preferential regime for profits arising from patents, known as the ‘Patent Box’, which could see royalties and other profits from patented products and technologies being taxed at just 10 per cent. The consultation ends today with a report to follow shortly.

John Dethridge, Tax Partner & specialist in R&D tax reliefs at Menzies comments: "It seems unlikely there will be major changes to the taxation of innovation and intellectual property (IP) tax relief as the Government is satisfied with the effectiveness of the current Research and Development Tax Credit regime. This encourages early stage research and follow up development where technological uncertainty exists. However, further consultation will follow in spring on the proposed new Patent Box.

“This is being proposed to improve the tax regime beyond the R&D stage, when the product is complete and the IP created is generating an income stream. Many other countries have a reduced tax rate for such income and the UK is currently seen by many corporate investors as uncompetitive, leading to IP being located in other tax jurisdictions, with potentially damaging implications for tax revenues and for the UK economy.

“Any improvement in the taxation of IP is to be welcomed, but we are some way off seeing what the finished article will look like. Some IP is not patented, and it seems this may be overlooked altogether. The identification of embedded patent income may also prove to be far more complex than anything in the current R&D tax credit claim process. Specialist tax advisers are going to be needed to ensure that taxation of innovation is minimised."