Patent Box Tax Relief

The Patent Box

The Patent Box is a UK government scheme which enables companies to pay a much lower rate of corporation tax in the UK (10% compared with up to 25%) for any profit generated by their patented inventions. Outlined below are answers to some key questions relating to this scheme. 

How do I qualify?

To benefit from the scheme, you must be a UK company liable to corporation tax and you must make a profit from exploiting patented inventions which you developed. 

In addition to patents, the scheme also applies to IP rights relating to medicines, plant breeding and plant varieties. 

The company must have legal ownership of, or an exclusive licence to, at least one granted UK or European patent, or a patent granted in one of a list of European Economic Area countries.

If the company has an exclusive licence to the patent, rather than owning the patent, the licence must be an exclusive licence (this refers to a licence of one or more rights to the exclusion of all others, including the licensor), and the licensee must have exclusivity throughout an entire national territory (and not just in one part of it). 

If the company is part of a group of companies, it is treated as holding an exclusive license if it is the only member of the group to hold the exclusive rights within an entire national territory. No-one else, including the licensor, must hold these rights. 

Which of my profits count?

To be classed as profits from intellectual property income which can qualify for the scheme, the profits must stem from commercial activities relating to patented inventions which you developed. These types of activities for patented products include:

• selling the patented product itself, selling products which incorporate the patented invention or selling bespoke spare parts;
• licensing of patent rights;
• selling patented rights; and
• damages, insurance or other compensation related to patent rights. 

Companies may also benefit from profits generated through manufacture using a patented process and providing a service using a patented tool. 

It is important to mention that while a UK or European patent (or a patent granted in specific EEA countries) is required, the patent box benefit can be claimed for profits made on global sales, without geographic restriction.

How do I join the Patent Box scheme?

To benefit from the scheme, you have to make an “election”. This must be done within two years after the end of the accounting period in which the relevant profits and income arose. There is no designated box to tick on your tax return to make an election. Making an election can be done on filling out your tax return form by providing the necessary calculations or by writing separately to HMRC. 

It is also possible to make an early election into the patent box in the years in which the patent application is pending. It is, however, only when a patent grants that the benefit from the Patent Box scheme can be realised. The scheme allows for a company to claim on profits generated prior to grant of the patent, backdated to a maximum of six years before grant.

How can Hindles help?

Many of our clients have benefited from the Patent Box scheme using patents which we have obtained for them. We are not accountants and so, whilst we cannot provide help with calculating the profits for the Patent Box scheme, we help you to grow your patent portfolio such as to make use of the Patent Box scheme. Our services include: invention harvesting; drafting, filing and prosecution of patent applications; and patent portfolio management. Please refer to our website for our full list of services and feel free to get in touch if you would like to discuss any of our services further. 

Author: Melissa Walden