BIM45965 - Specific deductions: patents & royalties: payment of royalties etc.

Intangible assets regime for companies

The intangible assets regime deals with the tax position of companies that pay royalties in respect of intellectual property (patents, copyrights, trade marks etc.) after 31 March 2002. Guidance on this is at CIRD10150 onwards. The guidance below is in respect of payments made before 1 April 2002, and payments by non-companies after that date.

Copyright royalties

Copyright royalties paid for the purposes of a trade are admissible as a deduction.

For copyright royalties paid to persons abroad see IM4000 onwards.

Use of patent

The guidance on sums paid to purchase patent rights is at CA75000 onwards. Sums paid in connection with the use (often referred to in legal terms as the ’user’ - meaning the right to continuing use or enjoyment) of a patent - are disallowed as deductions from trading profits in accordance with ICTA88/S74 (1)(p). They are however dealt with under ICTA88/S348 (2) and/or ICTA88/S349 (1)(b), which require deduction of tax.

Registered designs & trade marks

A design registered under the Registered Designs Act 1949 and the Copyright Design and Patent Act 1988 Part III, is, by those Acts, made the subject of a copyright. Payments in respect of the user of such a design are therefore not payments in respect of a patent falling within ICTA88/S74 (1)(p).

Rights in trademarks registered under the Trade Marks Act 1938 should not be regarded for tax purposes as copyright.

Paid to non-residents

ICTA88/S74 (1)(p) should not be regarded as extending to any royalty paid to a non-resident in respect of the user of a patent abroad. (See IM3922 as to the circumstances in which a lump sum payment may fall to be regarded as an ’income' payment.)