Securing tax relief under the Patent Box scheme

The Patent Box scheme allows profits attributable to patents held by a company to be taxed at 10% rather than the main rate of corporation tax. In order to qualify a company must have undertaken research and development work to develop the patent, and the company must hold/have held the patent. The Patent Box legislation is designed to complement the research and development tax relief scheme.

Who can claim?

For a company to claim under the Patent Box scheme it must:

• own or exclusively licence patents. Patents must have been granted by the UK Intellectual Property Office, the European Patent office, or equivalent IP offices in the EEA.
• Have undertaken qualifying development work on the patents.
• Receive income in relation to these patents (either by selling the patented products, licensing out patent rights, selling patent rights etc).

The relief

Profits relating to patent rights are taxed at 10% rather than the full rate of corporation tax applicable to that company. The benefit is taken as a deduction in the profits chargeable to corporation tax in the same manner as R&D tax relief and therefore the two reliefs can complement each other. The patent box deduction can therefore increase a tax loss that can be surrendered to obtain cash, or can be a straight tax saving.

Example

A company makes profit of £100,000 licensing the rights to a patent that the company holds.

Adjustments are made to reduce the relevant profit in relation to the provisions of the Patent Box scheme. For example in this illustration, the adjustment is £10,000.

The result is that the profit of £90,000 is taxed at 10% rather than the main rate of corporation tax (e.g. 20%). The corporation tax saving to the company at 10% is £9,000.