What is the Patent Box relief? The Patent Box is a Corporation Tax relief which gives a reduced rate of tax (10%) on income from patents and similar intellectual property, as opposed to the normal 20% tax rate. It was implemented by the government in 2013 in a bid to encourage high-value growth in the UK through a tax system that supports Research and Development (R&D).
Who qualifies? HM Revenue & Customs (HMRC) states on their website that your company is only eligible for the Patent Box relief 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
- If your company is a member of a group, it may qualify if another company in the group has undertaken the qualifying development
What income qualifies? - Income from the sale of a patented product (including sales of products which contain patented components, regardless of how minor this part of the product is)
- License fees and royalties received for granting the use of a patented item to individuals
- Income from the infringement of patents
- Notional royalties deemed to have been received where patented processes or items are used in the company’s own production
To further illustrate how the Patent Box relief works, we’ll take the example of company, Tech Corp Ltd. This is an artificial intelligence company with taxable profits of £500,000. Tech Corp Ltd has several patented products which account for 25% of its income. Its routine costs amount to £1,000,000. The company would normally pay a corporation tax of 20%.
| | Patent Income | Non-patent Income | Total |
| Taxable profits | 25% | 75% | 100% |
| | 125,000 | 375,000 | 500,000 |
| Less routine return (10% of £1,000,000) | 25,000 | 75,000 | 100,000 |
| Qualifying residual profit | 100,000 | 300,000 | 400,000 |
| Less marketing asset return (assume standard 25% deduction for SMEs) | 75,000 | | |
| Tax saving (20%-10%) | 7,500 | | |
What else is there to consider? Within your organisation, look at whether you have any patents or exclusive licenses over patents. You should also consider whether patented inventions are used in the business (regardless of how minor this invention is). It is also advisable to identify the revenue streams within your business that are derived from patents. In addition, you may have patentable intellectual property (IP) that you are unaware of. Are you using certain technology that your competition does not have access to? If so, explore whether it would be beneficial to patent this technology. If you are using patented technology from another company, you should also look into acquiring an exclusive license to use this technology in order to benefit from the Patent Box Relief.
How can Raffingers help? The Patent Box relief may appear to be complex and your company may have difficulty in calculating qualifying profits. We’ll be able to help you understand whether your company is eligible, qualifying IP rights and qualifying development rights. We have a highly-qualified team of experts who understand various tax regimes and who have helped previous companies save hundreds of thousands on R&D. Call us today on 020 8551 7200 or email
info@raffingers.co.uk for further information.
