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The Patent Box regime encourages companies to retain intellectual property (IP) and the corresponding valuable jobs and associated economic benefits in the UK by offering a reduced rate of tax on profits derived from qualifying IP.

The regime is often talked about as a 10% tax rate, and this is the case to an extent and extremely valuable with the increase in Corporation tax to 25%. However, the relief operates as a deduction from taxable profits. This means that companies with taxable losses can also benefit from the regime in certain circumstances.

What are the main Patent Box benefits?

  • Eligible companies holding qualifying IP benefit from an additional deduction against their taxable profits, which is to tax the profits attributed to the qualifying IP at a rate of 10%.
  • However, there isn’t a 10% tax rate – instead, the relief is claimed as a deduction against taxable profits. A company can create or increase taxable losses via a Patent Box deduction – this might be the case where a company makes a profit on sales of its patented products but a loss on other sales.

We would always recommend that loss-making companies with qualifying IP undertake the calculations to determine whether or not to pursue a claim.

The benefit varies considerably on a company-by-company basis as it depends on the proportion of income and expenses attributable to IP income.

How often is the Patent Box benefit available?

Once a company has established eligibility, the relief is available every year in which the company owns and generates income from qualifying IP. Bearing in mind patents have a life of 20 years, the total relief can be extremely valuable.

Additional benefits of protecting your IP

Many other non-tax benefits arise from ensuring your IP is adequately protected, so it’s worth discussing the possibilities of patenting qualifying technology. If this might be relevant to you, remember publishing any details of your innovation in the public domain may inhibit your ability to obtain a patent.

Reliefs during the patent pending period

It is also possible to accrue relief during the patent pending period – it can take several years for a patent to be granted, so from the date at which the patent application is made, the relief can be calculated each year and accrued, with the deduction given against taxable profits in the year the patent is granted.

How the Radius team can help

Our team are dedicated R&D Tax and Patent Box specialists, who can guide you through all aspects of a potentially complex Patent Box claim, ensuring your claim is robust and fully compliant before it is submitted.

For more detailed information on the Patent Box regime, including how it works, qualifying IP, example calculations, and how to make a claim, we welcome you to download our free Patent Box Guide today.

Download our free Patent Box Guide


Darryl Hoy

Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector.

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