Patent Box
The Patent Box regime enables eligible companies to pay a lower rate of corporation tax of 10% on worldwide profits earned from their patented inventions.
The purpose of the Patent Box is to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products in the UK.
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To benefit from the Patent Box, a company must hold a qualifying IP right. Individuals and partnerships are not eligible as they do not pay corporation tax.
The company must also have undertaken qualifying development by making a significant contribution to the creation or development of the patented invention, or a product incorporating the patented invention. Companies holding an exclusive licence under a qualifying IP right can also benefit from the tax relief in some circumstances.
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Patents granted in the UK, by the European Patent Office, and in some EEA countries are qualifying IP rights for the purposes of the Patent Box regime.
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The Patent Box covers worldwide income, and is not limited to the country where the patent is granted. This includes:
Income from selling patented products
Fees or royalties from licensing the patented invention
Compensation paid by infringers of the patent
Notional royalties for using the patented process or apparatus in your own business
Provided an election is filed with HMRC, the Patent Box can apply to income arising while a patent application is pending, with relief being given when the patent is finally granted.
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Since July 2021, the Patent Box has adopted the so-called “modified nexus approach” under which any benefit is linked to the proportion of R&D expenditure incurred by the UK company to develop the IP asset relative to the total R&D expenditure incurred. If you have developed the product in-house in the UK, this should not affect your entitlement to the tax relief, but proper records of expenditure must be maintained.
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If you are developing new products or processes and wish to know if they can be patented to enable you to take advantage of the Patent Box, please contact us to arrange a free “Innovation Audit”.
Where I can get more information?
For more details about Patent Box, please look at our information sheet below. If you have any questions about the tax-related aspects of the Patent Box, please consult your accountant or tax advisor. You might also like to ask them about R&D Tax Credits.
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Patent Box