This scheme is administered by HMRC and is designed to reward innovative UK companies. Patent Box incentivises a company to keep their IP within the UK and rewards them for doing so by reducing the corporation tax on profits resulting from qualifying IP income to 10%.
Even if the patented element of the product or process is minor, 100% of a company’s worldwide profits arising from qualifying IP income should qualify for the 10% Patent Box corporation tax relief.
Corporation Tax increased from 19% to 25% from 1 April 2023 for companies with profits over £250,000, increasing the benefit of claiming Patent Box.
*Source HMRC Patent Box statistics 2023
To benefit you need to have:
Many companies don’t think that their intellectual property (IP) is patentable, or they think that the patenting process is too expensive and takes too long to be worthwhile. The Patent Box has been specifically designed to overcome these barriers and the tax relief potentially covers the costs.
It may be that the patented element of the product or process is minor. But 100% of a company’s worldwide profits arising from product income should qualify for 10% corporation tax.
Possible to qualify for Patent Box tax relief with a UK, European and some international patents, or with exclusive UK licence to someone else’s patent if it is recognised and in scope.
The scheme incudes IP profits derived from worldwide sales and patent licence revenue.
Potential for reduction in corporation tax rate to be backdated to revenues generated during the “patent pending” phase.
GovGrant will calculate the profits that are generated from patented products for inclusion in your Corporation Tax return. If you have patents that have been applied for and not yet granted, we will make an assessment of your patent sales. This ensures your Patent Box benefit is fully maximised and you don’t lose out on profits generated during the patent application process.
But more than that we will prepare a Patent Box report that is attached to the Corporation Tax return that identifies:
To qualify for the Patent Box scheme, first of all you need to be a UK limited company and paying UK corporation tax. Secondly you need to have developed an innovative product or process and filed a patent application. Finally you need to have generated profits relating to that patented invention.
We find that many patented inventions are small technical improvements to established products or processes. These tweaks can be patented and may only be minor but all of your worldwide profits that are generated from that product should qualify for the rate of 10% corporation tax. This can result in thousands of pounds of tax savings, every year.
To make Patent Box claims, you need to elect into the Patent Box scheme and need the patent to have been granted. This must be done within 2 years after the end of the accounting period which contained the relevant profits and income. You can make an election in the computations accompanying your Company Tax Return or separately in writing. For patents applied for, but not granted while you are in the Patent Box scheme, you can accrue for these patented profits. Once the patent is granted these cumulative profits can be included in the Patent Box claim.
There is no special form of words for this election and no box on the Corporation Tax return.
Companies from any industry or sector can benefit from Patent Box, as long as they are a UK limited company, paying UK corporation tax, have filed a patent application, and have generated profits relating to that patented invention.
To understand the types of companies that are claiming the most often, HRMC last provided data from the financial year 2020-21.
For full details see the full breakdown here.
Our IP services, including Patent Box, are closely linked with R&D tax relief and a company can often claim tax relief under both schemes. GovGrant can offer you advice to maximise your claims across both schemes. Find out more about our R&D tax relief services.
