The Patent Box

The Patent Box scheme is available to companies earning profits from goods and/or services that have been patented in the UK or with the European Patent Office. A company is ’qualifying’ if it holds any qualifying Intellectual Property (IP) rights, or holds an exclusive licence in respect of any qualifying IP rights and meets the active ownership condition. 

The UK’s Patent Box regime offers an effective Corporation Tax rate of just 10% on worldwide profits which are earned from qualifying patents granted by the UK Intellectual Property Office, the European Patent Office or a specified EEA Country. It was designed to encourage companies to commercialise their existing patents as well as to support the development of new innovative products.

To calculate the profit eligible for the 10% tax rate, the first step is to establish how the patent income falls into one of the below categories, followed by additional adjustments to the company’s profits:

• Product and bespoke spare parts sales
• Royalties, milestones and licence fees
• Patent sales
• Damages for infringement and other compensation payments
• Services income or income from patented processes

Changes to the Patent Box regime were introduced from 1 July 2016 requiring companies looking to claim patent box relief to demonstrate a ’nexus’ between its R&D activities and tax benefit derived from the regime.

These changes require consideration of R&D expenditure alongside preparation of the Patent Box claim for a period, and ’streaming’ of these costs can be undertaken as part of the overall R&D claims process.

For further information on other incentives we’ve explored, please visit the following pages:

• Research and Development (R&D) tax relief 
• Other innovation incentives  

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