What is Patent Box?
The Patent Box is a UK government initiative that enables innovative companies to significantly reduce their Corporation Tax rate on profits earned from patented inventions from the standard 25% down to just 10%. By offering this substantial tax saving, the scheme encourages businesses to retain and commercialise intellectual property (IP) within the UK, supporting ongoing innovation and growth.
In the 2022-2023 tax year, In the 2022-2023 tax year, almost 1,600 companies claimed relief under the Patent Box scheme, with the average claim amounting to £1.1 million. However, this number represents only a fraction of potential claimants. In the same period, over 22,000 patents were filed in the UK, highlighting the large number of businesses with patentable innovations that may not be taking advantage of this relief.
Key features
To benefit from Patent Box, your company must own or exclusively license a qualifying patent and be actively involved in its development. The reduced tax rate applies only to profits directly attributable to the patented innovation, not to all company income.
Reduced Corporation Tax
Qualifying profits from patented products or processes are taxed at just 10%, compared to the standard 25% rate.
Partial Application
Only profits directly linked to the patented innovation benefit from the reduced tax rate.
Eligibility Criteria
Your company must own or exclusively license the patent and play an active role in its development.
Combine with R&D Tax Relief
The Patent Box can be used alongside R&D tax credits, creating a powerful incentive structure to enhance cash flow and support further innovation.
Who can claim Patent Box?
01
Patented Inventions
Your business must hold a valid patent granted by the UK Intellectual Property Office (IPO) or the European Patent Office (EPO) for a qualifying invention.
02
Profit Source
The profits you claim relief for must be directly linked to the patented invention. This includes income generated from selling patented products, licensing the patent to others, or using the patented process to manufacture goods or services.
03
Company Location
Your business must be a UK resident company for tax purposes.
What income qualifies?
There are five types of qualifying income for the scheme:
- Sales Income from products incorporating patents
- License fees
- Proceeds from the sale of IP
- Damages received for IP infringement
- Other compensation
If a patent is incorporated into a product or process and generates third party income, this can also apply to the scheme.
When can you claim relief?
To begin with, a company must first determine whether it qualifies for the Patent Box regime. Following this, the company may choose to elect into the scheme. There is a two-year window from the end of the relevant financial year to make this election and claim the reduced corporation tax rate on qualifying profits. This period allows sufficient time to calculate those profits. Once a method for calculating qualifying profits is in place, future calculations tend to be more straightforward. It is possible to elect out of the scheme but this needs consideration as, once you elect out, you cannot re-enter the scheme for five years.
Patent Box tax savings
The amount of tax you can save depends on the profits from your qualifying patents. By reducing the corporation tax rate on your profits to just 10%, your business can save, freeing up capital for reinvestment in further innovation and growth.
Global patents can qualify
Your patent doesn’t need to be UK specific. If they’re granted by the UK Intellectual Property Office (UK IPO), the European Patent Office (EPO), and certain other EEA countries they can qualify. This makes it a beneficial scheme for those with plans to expand globally.
Expert Advice for a Successful Patent Box claim
Maintaining Comprehensive Documentation
To support your Patent Box claim, it’s crucial to maintain thorough documentation of every step of the process, from research and development (R&D) to patenting.
Tracking revenues and costs is beneficial and setting up a system for calculating qualifying profits can simplify the process, especially for patents that may qualify in future years.
Aligning R&D and Intellectual Property (IP) Strategies
Both Patent Box and R&D tax credits incentivise different stages of the innovation process, working together to significantly boost profitability.
To qualify for the scheme, you must have conducted R&D on the intellectual property you’re claiming. If not, you may still be eligible for R&D tax relief, which can be claimed for the past two accounting periods as a direct financial reimbursement.
If you already claim R&D relief, you may be in a strong position to patent your innovation and claim Patent Box.
Professional Expertise
Claiming Patent Box can be complex, and if you’re unsure about how to proceed, it’s beneficial to seek professional advice.
Each patent and claim is unique, so expert guidance can help optimise your claim and maximise the financial benefits. Personalised support begins with an in-depth assessment, tailored specifically to your business. We conduct a comprehensive analysis of your patents and related income streams to identify all eligible profits, ensuring you receive the maximum relief possible.
Combining R&D and Patent Box
Combining R&D tax relief with the Patent Box regime creates a powerful incentive structure:
Initial R&D Investment
Companies invest in R&D activities, reducing their tax liability through R&D tax relief. The financial benefit not only offsets the cost of innovation but also reinforces R&D as a critical component of long-term value creation and corporate strategy
Patent Acquisition
Successful R&D leads to patentable inventions. Once a patent is granted, the company can benefit from Patent Box. Under this scheme, profits generated from the commercialisation or licensing of patented inventions are subject to a reduced rate of corporate tax.
Commercialisation
Profits derived from the patented products or processes are taxed at the reduced 10% rate under the Patent Box scheme. This combination not only lowers the effective tax rate but also encourages continuous investment in innovation.
Strategic benefits
By effectively combining these incentives, companies can:
- Enhance cash flow and profitability
- Reinvest savings into further R&D activities
- Strengthen their competitive position in the market
Claiming both R&D tax relief and Patent Box relief together can offer substantial financial and strategic advantages for qualifying companies, supporting their growth, innovation, and competitiveness in the marketplace.
Patent Box FAQs
How do I elect into the Patent Box scheme?
Your company must elect into the scheme during your corporation tax return. This must be done within two years of the end of the accounting period in which the relevant profits were earned.
Who qualifies for Patent Box?
UK based companies who pay corporation tax and hold a patent can potentially benefit from the scheme. Patent Box isn’t just limited to science and technology companies, all industries can be eligible.
What types of patents qualify for Patent Box?
Any business who’s had a patent granted by the UK Intellectual Property Office (UK IPO), the European Patent Office (EPO), and certain other EEA countries.
Can smaller businesses benefit from the Patent Box scheme?
Of course! Small and Medium sized enterprises SME’s that hold a patent can also benefit from this tax incentive. The scheme is not just limited to larger corporations.
What if my patents are held by another company in my group?
As long as you meet certain conditions, you can still benefit from the Patent Box scheme even if the patent is held by another company in your group. You may need exclusive license to exploit the patent to do this.
Can I claim both R&D tax credits and Patent Box?
Since Patent Box is not considered state aid, R&D Tax Credits can also be claimed so the schemes can be used side by side. In fact, companies that have invested time and resources into qualifying R&D and hold eligible IP can benefit significantly from using both tax relief schemes together.
I’ve heard of Nexus, how does this relate to Patent Box?
To qualify for tax relief, companies must now show a direct connection between the research and development (R&D) activities that led to their patents and the profits those patents generate. This link is known as the ‘Nexus’.
Speak to our team
If your business is eligible for Patent Box, or you believe your IP could be patented, contact our Patent Box Advisery Team, to explore how you could potentially benefit. Leading our Patent Box team, Ben brings over 6 years of experience as Head of Finance for a £6m manufacturing company. His commitment to delivering high-quality financial insights aligns perfectly with our mission to empower businesses with strategic financial guidance.
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