Patent Box
If your company holds patents or exclusive rights and earns income from them, whether through product sales, licensing, or using patented processes, the Patent Box regime could significantly reduce your corporation tax liability.
The Patent Box was introduced in April 2013, and allows companies to pay a reduced Corporation Tax rate of 10% on profits derived from qualifying patents and exclusive licences, significantly lower than the main rate of corporation tax of 25%. It was introduced with the aim of boosting Research and Development, promoting IP commercialisation, and retain high-value investment and jobs in the UK.
Therefore, if your company holds patents or exclusive rights and generates income from them, through sales of patented products, licensing, or even embedded patented processes, it could benefit from a substantial tax saving under the Patent Box regime.
Who Qualifies?
To benefit from the Patent Box, your company must:
- Be liable for UK Corporation Tax and generating profit
- Own or have an exclusive licence to a qualifying patent in the UK or EU
- Have undertaken qualifying development on the patent (creation or development of the invention itself or an end-product)
- For group companies, actively manage the patent portfolio or meet exclusive licence criteria
What Income Qualifies?
Not all of a company’s profits may come from exploiting patented inventions. In order to be considered profits from intellectual property, they must come from:
- Sale of patented products (including embedded goods or spare parts)
- Licensing and royalties
- Sale or disposal of patent rights
- Infringement income (damages, settlements)
- Services using patented processes or tools – using a notional royalty basis
Even if the patent only covers a small element of a larger product, profits from the whole product may still qualify for this relief.
When & How to Claim
You’ll need to elect into the Patent Box within 2 years of the end of the accounting period in which the relevant profits arose. This is done through your Company Tax Return (CT600).
If your patent is still pending, you can make an early election and claim retrospectively for up to six years once it’s granted.
Record-Keeping Requirements
HMRC expects detailed and well-organised documentation to support your claim. This may include:
- List of patents (grant dates, acquisitions, expiry)
- Licence agreements, acquisition costs, royalties
- Methodology for determining income and expenditure related to the qualifying
- right and cashflow allocations
- R&D expenditure tracing per patent
- Marketing asset return evidence
Why Stratos?
At Stratos, we’ve helped innovative businesses across a range of sectors take full advantage of the Patent Box. We can:
- Assess your company’s eligibility
- Handle the full election and calculation process
- Work with your R&D and finance teams to build a robust, HMRC-compliant claimManage any follow-up or queries with HMRC
If you would like any more information, please get in touch and we can talk through the process to determine whether your company might qualify for relief and how to start making a claim.
FAQs
Yes, unfortunately if you do not meet the deadline, relief will be denied. Therefore, thinking about this in a timely manner will be critical in making sure tax relief is not missed.
As long as a pre-grant election is made on the pending patent in the company’s tax return, a retrospective claim can be made once the patent is granted (up to a maximum of six years).
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Daniel Hill
Tax Consultant
Dan graduated from the University of York in 2023 with a master’s degree in mathematics. Shortly thereafter, Dan joined the team as a Tax Associate, has recently completed his ATT examinations, and is progressing towards being CTA qualified.
