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Markel Tax

13 Feb 2019

Trading losses versus Patent Box losses

Question: What is the difference between a trading loss and a Patent Box loss, or are they the same thing?

Answer: The concept of a Patent Box loss is completely different from a trading loss. A trading loss can be used to offset profits from other income and trades, profit from the previous year, future profits and other group company profits, making it an effective tax saving tool.

On the contrary a Patent Box loss is never a good thing. This arises where a Patent Box stream makes a loss in a period, independent of the overall profits made by the claimant company. This has to then be set off against other Patent Box profits such as other profitable streams (if applicable), other group companies’ Patent Box profits if any have elected in and made a profit, or failing that the Patent Box loss needs to be carried forward and offset against the first available Patent Box profit in that stream.

Because a Patent Box profit results in a deduction against corporation tax, offsetting these profits with Patent Box losses has the result of reducing a deduction, effectively increasing a company’s tax liability. Therefore where a company has not elected in to the Patent Box scheme and is not expecting to make a profit in the foreseeable future, any intention to elect in to the scheme should be considered extremely carefully from a timing point of view. A premature election could actually end up costing the company money.

Here to help: With more than 60 highly skilled tax and funding specialists, advising on over 2,000 complex tax issues each year, we work with your practice to provide up to date, practical solutions. If you have a client in a similar situation, or have a tax question of your own, we're here to help on 0345 223 2727. Or to find out more about our services, email taxmarketinguk@markel.com.
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