What Is the Patent Box?
The Patent Box regime is a form of corporation tax relief in the UK that is designed to encourage companies to keep and commercialise intellectual property (IP). It allows companies to apply a lower rate of corporation tax to profits earned from their patented inventions and certain other IP rights. As with research and development (R&D) tax relief, the Patent Box is a tax incentive that rewards innovation.
How Does the Patent Box Work?
Businesses liable to corporation tax that make profits from patented inventions can benefit from a reduced rate of corporation tax. As an example, in the UK, this reduced rate is 10%.
Patent owners sometimes licence their patented inventions for others to develop—if your business owns the licence to use others’ patented technology, it may still be able to benefit from the Patent Box’s reduced rate of tax. Additionally, if you have an exclusive licence to use a patented invention, on which you perform what is known as “qualifying development,” then your business can benefit from the Patent Box tax rate.
Which of My Profits Qualify for the Patent Box?
The Patent Box scheme covers IP profits derived from worldwide sales as well as patent licence income. The profits derived from selling the patented product or its spare parts (or the profits arising from using a manufacturing process or tool that is patented) will qualify for the Patent Box.
There are some additional income streams that can also lead to the lower rate of tax. This includes, for example, selling or licencing patented rights and income or damages that arise from infringement of the rights. For instance, in the UK, 100% of the worldwide profits generated from the product qualify for the 10% corporation tax rate.
Is My Business Eligible for the Patent Box?
There are various Patent Box schemes across the world, each one with differing eligibility criteria. In the UK, to benefit from this reduced rate of corporation tax and qualify for the Patent Box, a business must meet the following criteria:
- The business is a UK limited company paying corporation tax.
- It has developed an innovative product or process, filed a patent application, and generated profits from exploiting the patent.
- Alternatively, the business owns or exclusively licences-in patents granted by the UK Intellectual Property Office (IPO), the European Patent Office, or one of 13 other listed countries in the European Economic Area (EEA).
- The company has made a significant contribution to the creation or development of the patented invention or a product incorporating the patented invention.
How Do I Make a Patent Box Claim?
To make a claim for Patent Box tax relief, a company must elect into the Patent Box scheme within two years after the end of the accounting period in which the profits and income arose. A business can make an election in the computations accompanying the company’s tax return or separately in writing.
Ryan’s tax relief specialists can assist with your Patent Box calculation, work out the profits generated from your patented products (and profits generated from patents applied for but not yet granted), and record them on your behalf in your tax return. We will then prepare and attach a Patent Box report to the corporation tax return that provides further information on the calculations. Please note, streaming of income and expenditure is compulsory for each individual patent or IP right, so it is important that businesses maintain detailed recordkeeping.
If you would like to discuss your eligibility or enquire about how we can support your business, simply fill out the form below, and one of our experts will be in contact shortly.
Other Innovation Funding Services
Ryan’s unrivalled expertise within innovation funding and tax relief empowers companies to fuel their business growth and fund their future. Our specialist team will evaluate your business’s eligibility for a diverse range of innovation funding services, including grants, research and development (R&D) tax relief, capital allowances, the patent box, and land remediation relief.