Patent Box can reduce the net Corporation Tax rate applied to qualifying profits from patented technology to 10%. It can provide the logical next step for businesses that have invested in developing protected intellectual property and are now generating commercial returns from it.
Patent Box is a UK Corporation Tax relief that allows eligible companies to apply a 10% rate to qualifying profits associated with patented inventions. The relief can continue across multiple accounting periods while the relevant conditions remain satisfied.
The calculation begins by identifying the income and profit connected to the qualifying patent, before excluding amounts that fall outside the scheme and applying the required adjustments. A patented element within a wider product can sometimes bring more of the product income into consideration, depending on the patent rights held and the evidence available.
Patent Box may be worth exploring where a company owns or exclusively licenses patented technology and earns income from products, licences, processes or services connected to that invention.
Relevant income may arise from the sale of patented products, the licensing or sale of patent rights, patented processes, or services that use the protected invention. The link between the patent and the commercial return needs to be clear and supported by the company’s records.
A granted patent is normally required before a Patent Box claim can be made, although an earlier election may preserve profits arising while an application is pending.
The company must meet the relevant development requirements and, in some group situations, demonstrate that it has actively managed the patented intellectual property.
The two reliefs can support different stages of the same commercial development. A company may claim R&D tax relief while carrying out qualifying work and later use Patent Box when the resulting patented technology begins generating qualifying profit.
Based on qualifying research and development activity and the expenditure incurred while seeking an advance in science or technology.
Based on qualifying profit generated from patented technology after the protected intellectual property begins producing commercial returns.
Patent Box does not replace R&D tax relief. Businesses with valuable protected technology may need to consider both as part of their longer-term tax position.
Patent Box is intended to reward companies that have undertaken the R&D behind their qualifying intellectual property. The R&D fraction links the Patent Box benefit to that development activity and determines how much of the relevant IP profit can benefit from the reduced rate.
The development history matters. R&D carried out by the company and R&D subcontracted to an unconnected party are treated differently from R&D outsourced to a connected company or expenditure incurred acquiring qualifying IP.
The calculation compares qualifying R&D expenditure with the wider expenditure connected to the qualifying IP.
The 30% uplift can increase qualifying expenditure within the numerator, but the final R&D fraction cannot exceed 1.
Relevant R&D expenditure incurred directly by the company contributes to the qualifying expenditure used within the R&D fraction.
R&D subcontracted to an unconnected party can contribute to qualifying expenditure. Connected-party subcontracted R&D is treated differently and can reduce the R&D fraction, restricting the proportion of relevant IP profit that can benefit from Patent Box.
Expenditure incurred acquiring qualifying IP rights, including certain qualifying licences, can form part of the R&D fraction calculation and may reduce the proportion of relevant IP profit eligible for the Patent Box rate.
Why this matters: two businesses generating similar profits from patented technology can have different Patent Box outcomes depending on how the underlying IP was developed, whether R&D was outsourced within a group and whether qualifying IP was acquired.
A company cannot normally claim Patent Box while an application remains pending. However, the timing of the Patent Box election can affect the profits that may later be brought into the scheme once the patent is granted.
Early planning also gives the business time to establish suitable records, understand which income streams may be relevant and identify whether the development and ownership conditions are likely to be met.
Discuss a patent application with MSC R&D
Our experience in R&D tax relief gives us a strong understanding of the development work behind patented technology. We can help assess whether Patent Box is relevant, connect the protected invention to the company’s income and work through the position in line with HMRC guidance.
We consider the patent rights, development history, ownership position and commercial use of the protected technology.
We help establish which products, licences, processes and services may generate qualifying patent-related income.
We examine the records connecting the patented invention, the company’s development activity and the profit being claimed.
We work through the required calculation and explain the basis of the Patent Box claim clearly to the business.
The benefit and eligibility position depend on the company’s patent rights, development activity, income and group structure. These answers provide a useful starting point.
Ask MSC R&D about your positionWhere the relevant conditions are met, qualifying profits associated with patented technology can be taxed at an effective Corporation Tax rate of 10%.
The scheme can apply to patents granted by the UK Intellectual Property Office or European Patent Office, as well as certain other qualifying intellectual property rights. The company must also meet the conditions relating to ownership, development activity and profit.
A pending application does not create an immediate Patent Box claim. However, an election made at the appropriate time may allow qualifying profit arising from the election date to be included once the patent has been granted, subject to the scheme rules.
No. One qualifying patent may be sufficient where the related technology generates meaningful profit and the company satisfies the relevant Patent Box conditions.
Yes. R&D tax relief relates to qualifying development activity and expenditure, while Patent Box relates to qualifying profit from patented technology. A company may therefore use both reliefs at different stages of the same wider commercial development.
The R&D fraction links the Patent Box benefit to the R&D expenditure underlying the qualifying intellectual property. It considers who carried out the R&D and whether qualifying IP was acquired, and can restrict the proportion of relevant IP profit that benefits from Patent Box.
Yes. The Patent Box rules distinguish between R&D subcontracted to connected and unconnected parties. Unconnected subcontracted R&D can contribute to qualifying expenditure, while connected-party subcontracted R&D can reduce the R&D fraction and therefore restrict the proportion of relevant IP profit benefiting from Patent Box.
Early consideration allows the business to make any necessary election, put suitable record keeping in place and understand what information will be required when the patent is granted and the protected technology begins generating qualifying profit.
Whether your business already owns patented technology or has an application in progress, we can discuss the development work, income streams and records needed to assess the potential opportunity.
