Can I claim Patent Box relief?

Since 1 April 2013, certain income derived from patents and other qualifying intellectual property has been eligible for a reduced rate of corporation tax, at 10%.  Given the main Corporation Tax rate has been set at 19% for the foreseeable future, this is a generous relief for those companies with profits derived from qualifying Intellectual Property (IP).  The rules for the Patent Box regime were tightened following international scrutiny and as a result new claimants (those applying for accounting periods beginning on or after 1 July 2016) must apply these new more complex rules.

Who can claim?

Patent Box relief is available to UK registered companies which are liable to Corporation Tax.  The company must hold the qualifying IP and must have carried out qualifying development on the qualifying IP. 

Patent Box relief applies to patents granted by the UK Intellectual Property Office (IPO), the European Patent Office or by the national IPO of certain European countries.

Making a claim

To claim Patent Box relief a company must actively elect into the regime by notifying HMRC in writing. 

To arrive at the 10% headline rate, it is necessary to carry out a multi-step calculation which results in a patent box deduction.  This is deducted from the company’s taxable profits so that the profit on the qualifying IP only is taxed at an effective 10%.

Claiming Patent Box relief is not a straightforward exercise and an election into the regime should be considered carefully to ensure the patent holder will benefit from the work involved in calculating the relief. 

It is also important to consider the timing of an election as this could affect the amount of relief available – in certain circumstances it could be beneficial to defer election, particularly in the early years where the patented item might not realise a profit.

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