Patent Box – is this relevant for my company?

The Patent Box regime is a tax incentive that allows qualifying companies to benefit from a significantly reduced corporation tax rate of 10% on profits related to patents that they hold.

This regime aims to encourage companies to invest resources into innovation, research and development of new products and processes. In this article, we will explore the key aspects of the Patent Box regime, addressing common questions and providing insights into how companies can take full advantage of it.

What is the Patent Box regime?Introduced in 2013, the Patent Box is designed to encourage companies to retain and commercialise intellectual property in the UK. It enables companies to apply a reduced Corporation Tax rate to profits generated from their patented inventions.

The Patent Box is a less well-known tax incentive, although it represents a significant relief for UK companies.

Who is eligible for it?So, how do you know if your business qualifies for the regime? There are several key criteria to consider, including but not limited to the following:

• The company must be a trading company liable for corporation tax, and generating profits from the sales of their patented inventions
• The company must own or have an exclusive licence over qualifying IP right
• The company must have engaged in qualifying development related to the patent

As always, it’s important to ensure you take specific advice as to whether this applies to your circumstances. For example, there are a number of more detailed criteria around the qualification of a company, where the development of the patent has been completed in a different entity within the group structure.

How do I benefit from the scheme?To benefit from the Patent Box regime, companies must elect into the Patent Box regime to apply the lower rate of Corporation Tax. This allows their qualifying profits to be taxed at 10%, rather than the main rate of 25%. This election must be made with HMRC within 12 months of the tax return filing date, for the first period that Patent Box applies. Once elected, all company trades become subject to the Patent Box regime.

It is important to note that if you elected to the Patent Box after the 30th of June 2016, after this date benefits are restricted if your company either incurred expenditure in acquiring the patents or made payments to connected parties for their research and development expenditure.

The Patent Box regime offers UK companies a significant opportunity to reduce their tax burden by applying a 10% Corporation Tax rate on profits from patented inventions. For companies focused on innovation and IP development, the Patent Box provides a valuable incentive to drive growth while retaining more of their profits.

For more information on how we can help you and your business, please contact us via email or phone and we will be happy to advise on the best solutions for your business.

For more guidance visit: https://www.gov.uk/guidance/corporation-tax-the-patent-box

Please note: This article is provided for information only and was correct as at the time of writing (16/01/25). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance.  No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.