The Patent Box

The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations. The relief will be phased in from 1 April 2013 and the lower rate of Corporation Tax to be applied will be 10 per cent.

This guide explains who can elect for the Patent Box, which patents are eligible, and how and when to claim.

On this page:

Who can benefit from the Patent Box?

You can only benefit from the Patent Box if your company is liable to Corporation Tax and makes a profit from exploiting patented inventions.

Your company must also own or exclusively license-in the patents and must have undertaken qualifying development on them. You can read more about exclusively licensing-in patents later in this guide.

If your company is a member of a group, it may qualify if another company in the group has undertaken the qualifying development.

Read more about 'qualifying development'

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Which patents are eligible and what must be done with them?

You can benefit from the Patent Box if your company owns or exclusively licenses-in patents granted by the:

  • UK Intellectual Property Office
  • European Patent Office
  • following countries in the European Economic Area: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, and Sweden

Your company or another group company must also have undertaken qualifying development for the patent by making a significant contribution to either:

  • the creation or development of the patented invention
  • a product incorporating the patented invention

This guidance only refers to patents but your company may also benefit from the Patent Box if it holds certain other medicinal or botanic innovation rights.

Read more about 'qualifying development'

Read about medicinal or botanic innovation rights and the Patent Box

Groups of companies

If your company is a member of a group, it must also actively own the patented invention by taking a significant role in managing its whole portfolio of eligible patents.

Your company doesn't have to make all the decisions regarding the portfolio, but it must undertake a significant amount of the management.

Read more about the active ownership condition

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Exclusively licensing-in patents

Patent holders may wish to license their inventions for others to develop. If your company holds licenses to use others' technology it may still be able to benefit from the Patent Box. But to do so it must meet all of the following conditions.

It must have:

  • rights to develop, exploit and defend rights in the patented invention
  • one or more rights to the exclusion of all other persons (including the licensor)
  • exclusivity throughout at least an entire national territory - rights to manufacture or sell within part of a country, for example, would not qualify as exclusive

Also, the licensee must either be able to bring infringement proceedings to defend its rights or be entitled to most of the damages awarded in successful proceedings relating to its rights.

The exclusive licensing conditions are relaxed for groups of companies. This recognises that one company in the group may own a portfolio of patents while another exploits them.

Read more about groups and exclusively licensing-in patents

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Income earned from exploiting patented inventions

Not all of your company profits may come from exploiting patented inventions. To be relevant IP (intellectual property) income, it must come from at least one of the following:

  • selling patented products - that is sales of the patented product or products incorporating the patented invention or bespoke spare parts
  • licensing out patent rights
  • selling patented rights
  • infringement income
  • damages, insurance or other compensation related to patent rights

Your company can also benefit from the Patent Box if it uses a manufacturing process that is patented or provides a service using a patented tool. In these circumstances, you will need to calculate a notional royalty

Read about notional royalty

You can read more about how to calculate the profits that can benefit from the Patent Box by following the link later in this guide.

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How and when to claim

You have to make an election to benefit from the reduced rate of Corporation Tax that applies to the Patent Box. You can do this in the computations accompanying your Company Tax Return or separately in writing. There is no special form of words for this election. You must make your election within two years after the end of the accounting period in which the relevant profits and income arose.

The full benefit of the regime will be phased in from 1 April 2013. You will need to apply an appropriate percentage to the profits your company earns from its patented inventions.

The appropriate percentages for each financial year are:

  • 1 April 2013 to 31 March 2014: 60 per cent
  • 1 April 2014 to 31 March 2015: 70 per cent
  • 1 April 2015 to 31 March 2016: 80 per cent
  • 1 April 2016 to 31 March 2017: 90 per cent
  • from 1 April 2017: 100 per cent

There is no box on the Company Tax Return for making the election. Instead you apply the reduced 10 per cent rate by subtracting an additional trading deduction from your Corporation Tax profits. This is calculated using the following formula:

RP × FY% × ((MR - IPR) ÷ MR)

In the formula:

  • RP is the profits of a company's trade relevant to Patent Box
  • FY% is the appropriate percentage for each financial year
  • MR is the main rate of Corporation Tax
  • IPR is the reduced rate of 10 per cent

This approach is used to avoid complications if you claim losses or other reliefs. So before you can calculate the deduction, you must calculate the amount of your profits that qualify for Patent Box.

Read about how to calculate the profits which can benefit from the Patent Box

Examples

If a company has trade Corporation Tax profits of £1,000 in the financial year from 1 April 2015, which qualify in full for the Patent Box, and the main rate of tax is 22 per cent, then instead of arriving at a tax charge of £100 by multiplying £1000 by 10 per cent, the calculation is:

Calculation Amount
Profits chargeable to Corporation Tax £1,000
Patent Box deduction =
£1000
× 80% ((22 - 10) ÷ 22)
£436
Profits chargeable to Corporation Tax £564
Tax payable = £564 × 22% £124

Where your company's accounting period falls within more than one financial year you will need to apportion the profits your company earns from its patented inventions in that accounting period to each financial year.

For example, a company has trade Corporation Tax profits of £1,000 in the year ended 31 December 2016 which qualify in full for the Patent Box, the profits are apportioned as follows:

Profits falling in financial year 2015 (1 January 2016 to 31 March 2016) 91/366 × £1,000 = £249
Profits falling in financial year 2016 (1 April 2016 to 31 December 2016) 275/366 × £1,000 = £751

Calculation Amount
Profits chargeable to Corporation Tax £1,000
Patent Box deduction =
(£249 × 80% + £751 x 90%)
× ((22 - 10) ÷ 22)
£478
Profits chargeable to Corporation Tax £522
Tax payable = £522 × 22% £114

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Answers to your Patent Box questions

There are specialist HMRC units located throughout the UK who are able to assist you with your claim. These units are organised on a geographical basis, dealing with claims from companies whose main research and development base is within their postcode allocation. These units will also answer your Patent Box questions. You can contact them before making a claim or while you are putting together your claim.

In addition, HMRC has a free pre-recorded 'webinar' that provides a basic overview and introduction to R&D tax credits and the Patent Box, and explains who is eligible to claim, how to make a claim and where to get further help and advice for your business.

Go to the 'Research and Development (R&D) tax credits and the Patent Box' webinar (Opens new window)

But if your company's tax affairs are handled by a Customer Relationship Manager or Customer Co-ordinator in the HMRC Large Business Service (LBS) or in the Large and Complex teams (L&C), you should contact your LBS or L&C office direct.

Contact your specialist R&D Relief unit

Contact the Large Business Service or the Large and Complex teams

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More useful links

Read further guidance on The Patent Box

UK Intellectual Property Office (Opens new window)

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