Patent Box – Is this what innovative companies really need?

The Government’s interesting announcement that they intend to introduce a new rate of corporation tax to be levied on profits from new products developed and generated in Britain, being called “the patent box” is an interesting concept, albeit one that does exist in certain other European countries.

The idea behind the new announcement is to try and help promote British innovation and growing businesses and this has to be applauded although until the details are published, one can only speculate as to how this will work.

Having a reduced rate of tax for innovative businesses is potentially a great idea although many such businesses fail to make any profits in the early years.

Whilst, for some companies, such a “light at the end of the tunnel” will be very attractive, for others, they may never get there as cashflow problems result in their innovations never seeing the light of day.

A greater initiative might have been to extend the R&D tax breaks which do have some cashflow benefits particularly with regard to PAYE.  Research and development into new products and the implementation and marketing of them burn up cash at a rapid rate and there is often a significant time lapse between innovation, implementation and positive revenue.

Whilst a 10% tax rate for innovative companies should be applauded, other stimuli to make it worthwhile for businesses to be truly creative are what’s probably really called for.