The Patent Box scheme is relevant to all companies paying U.K Corporation Tax, including UK subsidiaries of overseas groups. It is a tax incentive to businesses to make profits from their patents, by reducing the tax paid on those profits. Introduced to the U.K in 2013, the scheme aims to promote innovation and research and development (R&D) across UK businesses, with the objective of encouraging them to commercialise their patents in the UK. The Patent Box allows a 10% tax rate on profits derived from any products that incorporate patents.
How does a business qualify for the Patent Box scheme?
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 do not need to be making profit from your own inventions to qualify. If your company holds licenses to use someone else’s technology, you may still benefit from the Patent Box scheme.
However, you must:
● Hold a qualifying IP right or an exclusive licence over a qualifying IP right
● Be making a significant contribution to the development of the qualifying patent or any product incorporating the patented invention
● Perform significant management activity to develop or exploit the patented innovation or product using it, even if your company did not develop the original patent or patent-
supported product. This may be particularly relevant if your company is part of a group
What income qualifies for the Patent box scheme?
Not all company profits qualify for the Patent Box scheme. To be relevant IP income, it must come from at least one of the following:
● Selling patented products – 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
What is the claim process?
To kick off the process, routine company profits are deducted from total profits, to arrive at a ‘qualifying residual profit’. You can then make a further reduction for marketing asset return, with the remaining profit attracting the Corporation Tax rate of 10%. This calculation will differ, depending on whether you are viewed as a large company or SME.
Put simply, the process is as follows:
● calculate qualifying income by identifying revenue streams from qualifying patents
● calculate profit generated from this qualifying income
● calculate residual profit by deducting routine profit made from routine business
● calculate the Patent box profit by deducting any profits derived from branding or
● use the HMRC formula to calculate the corporate tax deduction
Fore a more detailed description of the calculation required, please visit the HMRC’s “How to claim Patent Box tax relief” page.
To find out if you are eligible for the Patent Box scheme register over on