The patent box lets a company pay a reduced rate of corporation tax on the profits it earns from patented inventions. GOV.UK describes it as a reduced rate of 10% for a company that exploits patented inventions and innovations, against a main rate of 25%. The relief is generous and the computation is demanding, which is why it is claimed by fewer companies than are entitled to it.
What it gives and who can elect
A 10% effective rate on relevant intellectual property profits, delivered as a deduction in the computation rather than as a separate rate. The company must hold or exclusively license qualifying patents granted by the UK Intellectual Property Office, the European Patent Office or certain other national offices, and it must have undertaken qualifying development on the invention. The election is made in the return and has to be made within two years of the end of the accounting period it first applies to.
The computation is the real work
The company has to identify the income attributable to the patented invention, strip out a routine return on its other functions, remove a marketing return, and then apply a nexus fraction that scales the benefit by how much of the underlying research the company did itself rather than acquiring or subcontracting to connected parties. Each of those steps is a calculation with its own rules, and the nexus fraction in particular requires expenditure to be tracked per patent or per product family from the start.
When it is worth the effort
Where a patented product or process carries a substantial share of the company's profit and the company did the development itself. A company with one patent contributing modestly is unlikely to recover the cost of the streaming calculations. Because the election is time-limited and the nexus fraction depends on records kept from the beginning, the decision is worth taking when the patent is applied for rather than when it is granted, which is often years earlier than companies think about it.
Questions people ask about patent box tax relief
What rate does the patent box give?
An effective 10% rate on profits attributable to qualifying patented inventions, delivered as a deduction in the corporation tax computation.
Who can use the patent box scheme?
A company holding or exclusively licensing qualifying patents that has undertaken qualifying development on the invention. The election is made in the return within two years of the end of the accounting period.
Why do so few companies claim it?
The computation requires identifying patent-attributable income, deducting routine and marketing returns and applying a nexus fraction based on who did the research, which needs records kept per patent from the outset.