Patent Box is a further corporation tax relief enabling companies to apply a lower rate of CT to profits derived from patented innovations. The relief was phased in over a 4 year period i.e. 10% increase per year from 1st April 2013, and full relief has been available from 1st April 2017. The relief now gives a generous reduction of CT to 10% for profits or income from patent’s.
The UK’s Patent Box regime is very attractive to high-tech and life sciences corporates and groups, particularly where such corporates and groups can also benefit from Research and Development Tax Credits. R&D activity leading to a patent can – in the right circumstances – enable profits directly attributable to the innovation to be charged at a tax rate of just 10% under the Patent Box regime, whether this be a product or process etc.
A company can only benefit from this relief if it is liable for corporation tax and makes a profit directly from exploiting patented inventions. The attractive aspect of Patent Box is that it can be claimed alongside R&D Tax Credits, it not either/or.
Generally, a company must have ‘qualifying IP rights‘ and a ‘qualifying development‘ carried out in relation to the IP right. The company must make an election to be taxed under Patent Box within 2 years of the end of the accounting period.
1. To benefit, the company must own / exclusively license-in patents granted by the UK Intellectual Property Office, the European Patent Office and/or Certain countries in the European Economic Area
2. The company must also have undertaken qualifying development of the patent by significantly contributing to the creation / development of the patented invention or a product incorporating the patented invention
Not all company profits will come from patented inventions. The IP income must come from one of the following:
- selling patented products
- licensing out / selling patent rights
- infringement income
- damages, insurance or other compensation related to patent rights