Official Statistics

Background quality report: Patent Box relief statistics

Updated 28 September 2023

1. Contact

• Organisation unit - Knowledge, Analysis and Intelligence (KAI)
• Name - J Hogg
• Function - Economist, Direct Business Taxes
• Mail address - HM Revenue and Customs (HMRC), 100 Parliament Street, London SW1A 2BQ
• Email - ct.statistics@hmrc.gov.uk

2. Statistical presentation

2.1 Data description

This publication provides a breakdown of the tax relief claimed under the Patent Box in the tax year 2020 to 2021 and the tax year 2021 to 2022 by distribution of size of company, industry sector, UK regions and claim size.

The amounts of relief claimed under the Patent Box have been rounded to the nearest £1,000,000 and the number of companies claiming the relief have been rounded to the nearest 5. Some data has been suppressed to meet confidentiality requirements.

2.2 Classification system

This publication provides breakdowns of tax relief claimed under the Patent Box by tax year, size of company, industry sector, UK regions and claim size, which are determined based on data collected from electronically filed company tax returns and internal HMRC databases.

A unique taxpayer reference number, assigned to each registered company, is used to aggregate the data.

Industry sector is categorised by allocating a Standard Industrial Classification (SIC) 2007 code that best describes the company’s primary economic activity. However, some companies engage in more than one type of economic activity. The industry sector breakdown in this publication does not necessarily indicate where a company’s research and development activity takes place. For example, a company primarily doing manufacturing (and therefore allocated to the ‘Manufacturing’ sector) could also have a branch undertaking research and development activity in the ‘Scientific’ sector. Further, a pharmaceutical company, for instance, may be classified within the ‘Manufacturing’ or ‘Professional and Scientific’ categories. For this reason, the industry sector information should be viewed as only a broad picture as to where activity takes place. Particularly with industrial classification figures, some data has been supressed to meet confidentiality requirements. Because of rounding and suppression some breakdown figures may not add up to provided totals.

The geographic information in this publication is based on the addresses given by companies claiming relief under the Patent Box. The location of this address is not necessarily where a company’s research and development, manufacturing, or other activity takes place. Companies provide a Registered Office address to HMRC for communication purposes but can have business activities located in other UK regions.

2.3 Sector coverage

Corporation Tax (CT) is a direct tax charged on the profits made by companies, public corporations and unincorporated associations such as industrial and provident societies, clubs and trade associations. Companies operating in all industry sectors are required to pay CT.

This analysis focuses on the relief provided to those who claim under the Patent Box, and therefore apply a lower rate of CT (10% compared to the main rate of 19% in tax year 2021 to 2022 ) to profits attributable from the exploitation of patents and other qualifying forms of intellectual property (IP).

2.4 Statistical concepts and definitions

Tax rates

There was a lower rate of Corportation Tax for companies with small profits, known as the small profits rate (SPR), formerly the small companies’ rate (SCR). This rate applies when the profits are below a lower limit. Between that limit and an upper limit, the company is taxed at the main rate, but most companies can claim marginal relief to give a smooth progression in the average tax rate from the lower rate to the main rate.

Above the upper limit, the main rate applies. The profit limits are restricted for companies associated with one or more other companies, to prevent abuse by a company fragmenting into smaller ones.

From 1 April 2015, there is a unified rate of Corporation Tax rather than separate main and small profits rates. Different tax rates apply to companies with income and gains from oil and gas and gas extraction or oil rights, known as ‘ring-fence’ companies. These companies are also subject to a supplementary tax charge on their ring-fenced profits.

A special tax rate applies to unit trusts and open-ended investment companies.

Corporation Tax liabilities

The amount of Corporation Tax that companies must pay to HMRC. Corporation Tax liabilities are considered to be accrued in the financial year where the end date of the company’s accounting period lands.

Patent Box

The UK Patent Box enables companies to apply for a lower rate of CT to relevant profits earned after April 2013 from qualifying patented inventions and equivalent forms of IP.

The relief was phased in from 1 April 2013 and the full benefit of the Patent Box has been available from 1 April 2017. The lower rate of CT under the Patent Box is 10% compared with the main rate of CT.

Companies make an election to benefit from the reduced rate of CT that applies to the Patent Box. This must be done within 2 years after the end of the accounting period in which the relevant profits and income arose.

Changes were made to the UK Patent Box in 2016 to comply with OECD rules on base erosion and profit shifting (BEPS). These changes formalised the requirement to link substantive R&D activity undertaken by the company making the claim to the qualifying relevant IP profits.

Companies already elected into Patent Box by 1 July 2016 were able to apply the original rules to their existing qualifying IP rights until 1 July 2021, to allow time for them to make arrangements to comply with the new rules. Between 2016-17 and 2021-22 the Patent Box statistics therefore include a mix of companies using the old rules, which reduces as new IP is acquired, and companies electing in after 1 July 2016 using the more restrictive rules immediately.

Financial year

The statistics are aggregated into financial years. A financial year stretches from 1st April until 31st March the following calendar year.

Number of companies

The number of companies who notify HMRC through electing into the Patent Box and successfully submit a tax relief claim under the Patent Box, for a given financial year. An update has been made to this release to provide a more complete view of the number of companies utilising the Patent Box. In prior releases, if a company elected into the Patent Box but was unable to receive any relief in a given year, it was excluded from the statistics for that year. Going forward, all companies that chose to make a Patent Box election will be recorded as such for each year the election is made. The total numbers of companies elected into the Patent Box has therefore been revised and has increased compared with previous publications. To demonstrate the impact of this adjustment, an additional section has been created in 4.5 and additional Tables 9 and 10 have been included in Section 7 in the main report, to show the distribution of companies electing into the Patent Box by the value of the relief they claim each year. Companies that elected into the Patent Box but claimed no relief in the period are clearly shown in the table.

Company size

The size of a company is based on the European Union Enterprise Size Classification. More information on this can be found in the Annex of the Patent Box Statistics publication.

2.5 Statistical unit

The unit in the statistics is companies who have elected into the UK Patent Box and claim relief on Corporation Tax to the profits attributable to patents and equivalent forms of intellectual property (IP).

2.6 Statistical population

Companies can use the Patent box providing they are liable to pay Corporation Tax in the United Kingdom (UK), makes a profit from exploiting patented inventions, owns or has exclusively licenced-in the patents, and has undertaken qualifying development on the patents.

2.7 Reference area

The geographic region covered by the data is the United Kingdom (UK).

2.8 Time coverage

The statistics cover the time period from the tax year 2013 to 2014 until the latest financial year for which a nearly complete set of data is available. This is due to the way the Patent Box is designed, where a complete set of annual data of the relief for any given financial year becomes available only after two years from the end of that given year.

Provisional statistics are published for tax year 2021 to 2022 for claims made up to and including June 2023. The statistics will be updated based on the complete set of Patent Box claims relating to tax year 2021 to 2022 in the next annual release (Autumn 2024).

3. Statistical processing

3.1 Source data

The Patent Box statistics are compiled using data collected from electronically filed company tax returns.

3.2 Frequency of data collection

Updates on the population of submitted Patent Box claims are produced each month.

3.3 Data collection

The Patent Box statistics are compiled using data collected from electronically filed company tax returns.

The CT computations, where relief under the Patent Box is claimed, are submitted to HMRC in iXBRL (electronic) format. This allows companies to electronically ‘tag’ their Patent Box claim so that the number and value of each claim can be extracted automatically.

3.4 Data validation

Some Patent Box claims do not have the correct iXBRL ‘tag’ applied to them. Further review and scanning of tax computation documents is therefore conducted to identify computations containing relevant terms such as ‘Patent Box’ or ‘Patent Relief’ that would otherwise be missed.

All of the tax computations identified via the iXBRL ‘tagging’ or text reading processes outlined above are manually reviewed to:

• ensure that the tags were used correctly for Patent Box claims
• extract the value of the claim if found by text reading and confirm the position in other years where there was no apparent claim
• ensure that when amendments to returns were made only the difference in amounts was recorded to avoid double counting

3.5 Data compilation

Aggregating data

Data are aggregated using a unique taxpayer reference number assigned to each company. This unique number does not change across financial years.

4. Quality Management

4.1 Quality assurance

All official statistics produced by KAI, must meet the standards in the Code of Practice for Statistics produced by the UK Statistics Authority and all analysts adhere to best practice as set out in the ‘Quality’ pillar.

Analytical Quality Assurance describes the arrangements and procedures put in place to ensure analytical outputs are error free and fit-for-purpose. It is an essential part of KAI’s way of working as the complexity of our work and the speed at which we are asked to provide advice means there is a high risk of error which can have serious consequences on KAI’s and HMRC’s reputation, decisions, and in turn on peoples’ lives.

Every piece of analysis is unique, and as a result there is no single quality assurance (QA) checklist that contains all the QA tasks needed for every project. Nonetheless, analysts in KAI use a checklist that summarises the main QA tasks, and is used as a starting point for teams when they are considering what QA actions to undertake.

Teams amend and adapt it as they see fit, to take account of the level of risk associated with their analysis, and the different QA tasks that are relevant to the work.

At the start of a project, during the planning stage, analysts and managers make a risk-based decision on what level of QA is required.

Analysts and managers construct a plan for all the QA tasks that will need to be completed, along with documentation on how each of those tasks are to be carried out and turn this list into a QA checklist specific to the project.

Analysts carry out the QA tasks, update the checklist, and pass onto the Senior Responsible Officer for review and eventual sign off.

4.2 Quality assessment

The QA for this project adhered to the framework described in ‘4.1 Quality assurance’ and the specific procedures undertaken were as follows:

Stage 1 – Specifying the question

Up to date documentation was agreed with stakeholders setting out outputs needed and by when; how the outputs will be used; and all the parameters required for the analysis.

Stage 2 – Developing the methodology

Methodology was agreed and developed by working with stakeholders and others with relevant expertise, ensuring it was fit for purpose and would provide the required outputs.

Stage 3 – Building and populating a model/piece of code

• analysis was produced using the most appropriate software and in line with good practice guidance
• data inputs were checked to ensure they were fit-for-purpose by reviewing available documentation and, where possible, through direct contact with data suppliers
• QA of the input data was carried out
• the analysis was audited by someone other than the lead analyst – checking code and methodology

Stage 4 – Running and testing the model/code

• results were compared with those produced in previous years and differences understood and determined to be genuine
• results were determined to be explainable and in line with expectations

Stage 5 – Drafting the final output

• checks were completed to ensure internal consistency (for example, totals equal the sum of the components)
• the final outputs were independently proofread and checked

5. Relevance

5.1 User needs

This analysis is likely to be of interest to users under the following broad headings:

• national government – policy makers
• academia
• research organisations
• international bodies
• the media
• patent holding businesses

People interested in this publication may also be interested in HMRC’s National Statistics publication on Research and Development tax credits

5.2 User satisfaction

Formal investigations into user satisfaction have not been undertaken, however feedback from users following the release have been received and KAI are always open to ideas for new analysis to meet changing user requirements.

If you would like to comment on these statistics or have any enquiries, please use the contact named at the beginning of this report.

5.3 Completeness

Companies must notify HMRC if they wish to claim relief under the Patent Box within two years after the end of the accounting period in which the relevant income and profits arise.

Although the majority of returns are finalised within the two years of the company’s accounting period, there are exceptional cases which can take longer. As a result, there is no specific point at which data for the latest year can be considered as complete and final.

Within this release, partial statistics are reported for the period 1 April 2021 to 31 March 2022, known as the tax year 2021 to 2022 – these will be updated in the next annual release (Autumn 2024).

6. Accuracy and reliability

6.1 Overall accuracy

This analysis is based on administrative data, and accuracy is addressed by eliminating non-sampling errors as much as possible through adherence to the quality assurance framework.

The potential sources of error include:

• companies applying an incorrect iXBRL ‘tag’ in their Corporation Tax computations file and not using the words ‘patent box’ in the computations
• software error when reading electronic text submitted as part of the company tax return
• companies not completing their Company Tax Return form by the required date
• the accuracy and consistency of the assignment of SIC 2007 and the Summary Trade Classification (STC) codes, when classifying companies by industry sector
• mistakes in the programming code used to analyse the data and produce the statistics
• amendments made by paper claims would not be included as the data is not electronic
• amendments made electronically but with no claim, tags or words would not be found, so the original claim would return as valid

6.2 Sampling error

The analysis includes every case captured by HMRC and, as no sampling is necessary, sampling error is not an issue.

6.3 Non-sampling error

Coverage error

Companies must notify HMRC if they wish to claim relief under the Patent Box. This must be done within two years after the end of the accounting period in which the relevant profits and income arise. Coverage error is therefore not relevant.

Measurement error

The main sources of measurement error could be categorised as respondent errors and include the following:

• companies may make errors entering their information into Corporation Tax computations
• Corporation Tax computations are submitted to HMRC in iXBRL (electronic format), which is another point at which data may be altered due to software error

In addition, companies are classified by industrial sector using the SIC 2007 standard and the Summary Trade Classification (STC) codes. The quality of the statistics is limited by the accuracy and consistency with which these codes have been assigned.

Nonresponse error

When analysing tax liabilities for the latest available year, figures are not necessarily available for all companies, as some may not have completed their Company Tax Return by the required date.

A grossing factor is applied to extrapolate aggregate ‘partial’ results to the full financial year, based on extrapolation from previous year’s data. Statistics that are more accurate will be available in the following year’s publication, by which time almost all companies will have completed returns and assessments, and this error will have been mitigated.

Processing error

It is possible that errors exist in the programming code used to analyse the data and produce the statistics. This risk is reduced through developing a good understanding of the complexities of the Patent Box, and thoroughly reviewing and testing the programs that are used.

6.4 Data revision

Data revision – policy

The United Kingdom Statistics Authority (UKSA) Code of Practice for Official Statistics requires all producers of Official Statistics to publish transparent guidance on the policy for revisions.

Data revision – practice

The Patent Box figures are subject to revision. Although the majority of returns are finalised within two years of the company’s accounting period, there are exceptional cases which can take longer. As a result, there is no specific point at which data for the latest year can be considered as complete and final.

In practice, the statistics are revised to replace any figures marked as provisional in the previous release of the statistics. However, where the revision to a year is particularly small and would lead to the potential disclosure of individual companies, these revisions will be supressed until a subsequent release.

6.5 Seasonal adjustment

Seasonal adjustment is not applicable for this analysis.

7. Timeliness and punctuality

7.1 Timeliness

Companies must notify HMRC if they wish to claim relief under the Patent Box. This must be done within two years after the end of the accounting period in which the relevant profits and income arise. Therefore, a complete set of annual data of the relief for any year becomes available only after two years from the end of that given year. This has meant that Patent Box statistics lag behind by at least one year compared to other tax statistics produced by HMRC.

Given this time lag, a complete set of data for the period 1 April 2020 – 31 March 2021, known as the tax year 2020 to 2021 – has only recently become available. These data are updated from last year’s release.

Partial statistics are also included for the tax year 2021 to 2022 for claims made up to and including June 2023, which will be updated based on a complete set of data in the next annual release (Autumn 2024).

7.2 Punctuality

In accordance with the Code of Practice for official statistics, the exact date of publication will be given not less than one calendar month before publication on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

Any delays to the publication date will be announced on the HMRC National Statistics website.

The full publication calendar can be found on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

8. Coherence and comparability

8.1 Geographical comparability

The geographic information in this publication is based on the addresses given by companies claiming relief under the Patent Box.

The location of this address is not necessarily where a company’s research and development, manufacturing, or other activity takes place. Companies provide a Registered Office address to HMRC for communication purposes but can have business activities located in other regions.

8.2 Comparability over time

The statistics for each relief are comparable with previous years.

8.3 Coherence – cross domain

Different sources are used to provide data for a company’s SIC 2007 sector code, region and company size. This information comes from a HMRC data set that brings together Corporation Tax data for a financial year with external data sources, like IDBR and FAME, which sources data mainly from Companies House records.

Coherence – sub-annual and annual statistics

All statistics are presented as annual outputs. No coherence issues exist.

Coherence – national accounts

Coherence issues are not applicable to this release.

8.4 Coherence – internal

Rounding of numbers may cause some minor internal coherence issues as the figures within a table may not sum to the total displayed. Effort has been made to ensure totals between tables remain constant where appropriate.

9. Accessibility and clarity

9.1 News release

There has been the publication on GOV.UK of the Evaluation of the Patent Box on 17th November 2020, which evaluates the wider economic impacts of the Patent Box.

9.2 Publication

The tables and associated commentary are published on the Patent Box reliefs statistics webpage of GOV.UK.

Tables are published in the OpenDocument format, and the associated commentary in HTML.

Both documents comply with the accessibility regulations set out in the Public Sector Bodies (Websites and Mobile Applications) (No.2) Accessibility Regulations 2018.

Further information can be found in HMRC’s accessible documents policy.

9.3 Online databases

This analysis is not used in any online databases.

9.4 Micro-data access

Access to this data is not possible in micro-data form, due to HMRC’s responsibilities around maintaining confidentiality of taxpayer information.

9.5 Other

There are not any other dissemination formats available for this analysis.

9.6 Documentation on methodology

All up-to-date information on the methodology is found on this webpage.

9.7 Quality documentation

All official statistics produced by KAI, must meet the standards in the Code of Practice for Statistics produced by the UK Statistics Authority and all analysts adhere to best practice as set out in the ‘Quality’ pillar.

Information about quality procedures for this analysis can be found in section 4 of this document.

10. Cost and burden

All necessary data for the Patent Box statistics are obtained from filed Corporation Tax computation but HMRC conducts additional checks and reviews on the data.

It is estimated to take about 10 days FTE to produce the annual analysis and publication.

11. Confidentiality

11.1 Confidentiality – policy

HMRC has a legal duty to maintain the confidentiality of taxpayer information.

Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (CRCA) sets out our duty of confidentiality.

This analysis complies with this requirement.

11.2 Confidentiality – data treatment

The statistics in these tables are presented at an aggregate level so identification of individual companies is minimised, but potentially still possible. Aggregate data categorised by SIC 2007 code, has the potential to be disclosive.

Where potential risks exist, statistical disclosure control (SDC) is applied to cells within tables. SDC is the application of methods to ensure confidential data is not disclosed to parties who don’t have authority to access it.

SDC modifies data so that the risk of data subjects being identified is within acceptable limits while making the data as useful as possible.

Disclosure in this analysis is avoided by applying rules that prevent categories of data containing:

• small numbers of contributors, and
• small numbers of contributors that are very dominant

If a cell within a table is determined to be disclosive, its contents are suppressed either by removing the data or combining categories.

Further information on anonymisation and data confidentiality best practice can be found on the Government Statistical Service’s website.