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Patent Box Tax Relief – are you maximising the return on your patents?

As with R&D Tax Relief, Patent Box Tax Relief has been an available Corporation Tax Relief for many years, but HMRC statistics show that only 1,405 companies made a patent box claim in the 2018/19 tax year, yet for 2019 alone there were 5,948 UK patents granted. If your company has a valid patent, are you maximising the tax relief that is available from the profits that this patent is generating?

Patent Box Tax Relief provides a theoretical 10% Corporation Tax rate on profits that have been generated from a qualifying patent. This tax rate is achieved by determining an additional deduction that is applied to the Corporation Tax computations.

To qualify for Patent Box Tax Relief the company needs to meet the following criteria:

  • Is liable to Corporation Tax
  • Makes a profit from exploiting patented inventions
  • Owns or has exclusively licenced-in the patents. The patent needs to have been granted by either of the following authorities – the UK Intellectual Property Office, the European Patent Office – or certain countries in the European Economic Area (Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, Sweden)
  • Has undertaken qualifying development on the patents. This means that the R&D work that was required to create the qualifying development was undertaken or contributed to by either company or a company within the same group.

If the above criteria are met, then a calculation needs to be undertaken to split out the income and profits the company has generated from general activities and those attributable to the patent. The calculation can be quite complicated but the tax benefit that could be obtained is far greater than the work required to get there.

Given that we are currently at 19% Corporation Tax rate, Patent Box Tax Relief provides a 9% tax rate deduction with this deduction only increasing once the Corporation Tax rate increases to 25% from 1 April 2023.

Therefore, it is worth considering if the company is generating profits from a patent currently so that a claim can be made for the open Corporation Tax periods, and when the Corporation Tax rate does increase to 25% the benefit from the patent will provide an even greater tax rate reduction.

Please contact Phil Hartley should you wish to have a no obligation discussion on Patent Box Tax Relief.


Strength in Numbers Summer 2022