How to Claim Patent Box Relief

(Patent box isn't actually a 'claim' strictly speaking, but many people refer to it in this way)

The UK’s Patent Box regime offers innovative companies a valuable opportunity to reduce their Corporation Tax rate to 10% on profits earned from patented inventions. If your business is developing and commercialising intellectual property, here’s how you can claim this relief.

What Is Patent Box Relief?

Patent Box is a tax incentive designed to encourage companies to keep and exploit intellectual property in the UK. It allows eligible companies to apply a reduced 10% Corporation Tax rate to profits derived from qualifying patented inventions.

Step 1: Check Your Eligibility

To qualify, your company must:

• Be subject to UK Corporation Tax

• Own or exclusively license-in eligible patents granted by the UK Intellectual Property Office, the European Patent Office, or certain EEA countries. See this page for more guidance on qualifying IP rights for Patent Box.  

• Have undertaken qualifying development on the patented invention

Step 2: Elect into the Patent Box

You must formally elect into the Patent Box regime. This is done by including an election in writing to HMRC. This can be submitted as a statement within your corporation tax computation that is attached to your company’s Corporation Tax return (CT600) for the relevant accounting period. It can also be made in writing through a short letter to HMRC making the intention of the election clear. 

The election must be made within two years of the end of the accounting period for which you wish to elect into Patent Box from, which maybe the first period in which the relevant profits were made.

Step 3: Identify Relevant Income

Only certain types of income qualify for the reduced tax rate. These include:

• Sales of patented products

• Licence fees from patented technology

• Proceeds from the sale of patents

• Compensation from patent infringement cases

Step 4: Calculate the Deduction

The calculation involves:

• Identifying total relevant IP income

• Deducting routine profits and marketing returns

• Applying the R&D fraction (if applicable) to determine the qualifying profits

• Applying the 10% tax rate to those profits

This process can be complex, and HMRC provides a six-step formula to guide companies through the calculation.

Step 5: Maintain Supporting Documentation

You’ll need to keep detailed records, including:

• Patent ownership or licensing agreements

• Evidence of qualifying development activity

• Profit allocation and calculation methodology

• Corporation Tax computations

Step 6: Submit Your Claim

Once your calculations are complete and your election is made, submit your Corporation Tax return with the Patent Box deduction included. It’s advisable to review the return with a tax advisor to ensure accuracy and compliance.

Bonus Tip: Combine with R&D Tax Relief

Patent Box relief can be used alongside R&D tax credits. Coordinating both claims can maximise tax savings and streamline the compliance process.

For more detailed information and assistance with Patent Box tax relief, please contact me at will@rainfordir.co.uk or book a call using the link below.