The Patent Box will mean that eligible profits from worldwide sales of products protected by a granted UK or European patent will be taxed at only 10 per cent from April 2013, compared to the standard 24 per cent rate.

The cost of obtaining a UK patent is typically a few thousand pounds. However, small and medium-sized enterprises (SMEs) could save several times this amount in tax under the new scheme, in addition to gaining valuable patent protection.

Patrick King, tax partner at law firm MHA MacIntyre Hudson hails the legislation announced by Chancellor George Osborne.

He says, ‘This is key to ensuring manufacturing continues in the UK and could be a very popular decision among SMEs. These companies may have neglected to patent their technologies in the past but this decision will help ensure behavioural change in the industry.’

However, King warns that it may not take effect immediately. ‘This is going to create a long tailback in the industry while businesses try to understand which patents are owned and it may take a while for the system to work efficiently.’

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Co-founder of design company LUX-FIX Alice Hastings-Bass adds, ‘The government still has much to do to create an investment-friendly environment in the UK. The Patent Box tax break extension is but a small step in the right direction in encouraging innovation.’

Daniel Thomas, founder of spa and hot tub provider Danz says that at the moment his company doesn’t handle many aspects of design, but this could change following the Patent Box announcement. He says, ‘We have thought many times about designing our own control system for the hot tubs. The 10 per cent deduction announced today may well give us the impetus to get around to doing this.’