As proposed in the 2009 Pre-Budget Report (see Legal update, Pre-Budget Report 2009: implications for IP, IT and communications), the government intends to introduce a 10% corporation tax rate for income from UK patents (referred to as a "Patent Box") from April 2013. The lower rate will apply to patents granted after relevant legislation is passed in 2011. However, the government plans to consult on a range of issues relating to the scope and operation of the Patent Box during the summer of 2010, including the potential application of the reduced rate to patents not commercialised in time for the legislation's implementation date; how to identify and value embedded patent income; how to give relief to acquired patents; and how the regime will apply to equivalent overseas patents held by UK companies.

(See 2010 Budget Report: Chapter 4, paragraph 4.32.)

At the time of the Chancellor's 2009 Pre-Budget Report in December 2009, the government stated that it was not persuaded by the evidence in support of a tax incentive to promote the development of culturally British video games. However, as part of its 2010 Budget statement the government has now announced that, following consultation, it will introduce a tax relief for the UK's video-games industry, subject to state aid approval from the European Commission.

(See 2010 Budget Report: Chapter 4, paragraph 4.33.)

The Secretary of State for Culture, Media and Sport, Ben Bradshaw, has welcomed this proposal and acknowledged the economic importance of the video-games industry, which is estimated to contribute £1 billion to the UK's GDP.

Although details of the relief have not yet been settled, it is likely that the new relief will mirror the UK tax relief for film production companies introduced by the Finance Act 2006, which permits a percentage relief on qualifying expenditure for productions that satisfy a cultural test for being a British film (see Practice note, Film tax relief). The Department for Culture, Media and Sport plans to work with HM Treasury, the Department for Business, Innovation and Skills and the video-games industry to develop the games tax relief.

In a table outlining the fiscal impact of the 2010 Budget policy decisions, the tax relief for the video-games industry has been costed at £40 million for 2011/12 and £50 million for 2012/13 (see Budget report, Chapter 1: Overview, Table 1.2).

The government's turnaround on the tax relief marks an important victory for the UK video-games industry and trade associations TIGA and ELSPA, who have lobbied the government on this issue for several years. TIGA welcomed the news as a breakthrough in the UK video-games industry's attempt to operate on a level playing field with competitors in countries such as Canada and France, who have enjoyed tax incentives for some time.

The government has confirmed its plans to introduce a 50 pence-per-month duty on landlines from 1 October 2010 to help fund the roll-out of next-generation access (the upgrade necessary for households to receive "super-fast" or "next-generation" broadband).

(See 2010 Budget Report: Chapter 4, paragraph 4.51 and box 4.4.)

The government wants 90% of households to be upgraded by 2017, but has calculated that government intervention is needed to achieve this. The government has already consulted on implementation proposals in its draft Finance Bill 2010, and has published the results of the consultation alongside the Budget. The tax will be payable on the lines that connect an end-user's premises to the wider communications network (local loops), but the owner of the local loop will be liable for the tax, and it is then a commercial decision for the owner whether they want to pass the tax through to the retailer and, ultimately, the end-user. The proposals are likely to become law because the Finance Bill 2010 is expected to get Royal Assent before the election. (For further details on the landline levy, see Legal update, Government confirms tax on landlines.)