Patent Box

• Published date: 07 June 2021
• Subject Matter: Intellectual Property, Patent
• Law Firm: Haseltine Lake Kempner LLP
• Author: Andrew Dowling and Phil Davies

The UK Patent Box is a generous scheme that can yield significant savings for UK companies. By electing for Patent Box tax treatment, UK companies can benefit from a reduced rate of Corporation Tax of 10% on a proportion of profits derived from qualifying intellectual property (IP) rights.

The basic concept is straightforward but, as ever, there is some complexity in the detail. The purpose of this briefing note is to strip out some of that complexity and give companies a clearer idea of what they can do to ensure eligibility for, and maximum benefit from, Patent Box.

Understanding Patent Box

Who is eligible?

To be eligible for Patent Box a company must:

1. Be liable to pay UK Corporation Tax.
2. Own a qualifying IP right or hold an exclusive licence for a qualifying IP right (the exclusivity may relate to a particular national territory or different fields of application).
3. Satisfy the 'development condition' by showing that the company has significantly contributed to the creation of the invention or has developed it or developed its application, even if the qualifying IP was acquired. If a company is a member of a group and only a fellow group company satisfies the development condition, the company can instead show that they have performed significant management activity in relation to the IP rights.

What IP rights qualify?

Profits derived from the following patents can benefit from the Patent Box regime:

1. Patents granted by the UK Intellectual Property Office.
2. Patents granted by the European Patent Office - regardless of where they are validated.
3. Patents granted in EEA states with similar patentability and examination criteria to the UK. As of April 2021, these are Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland Germany, Hungary, Poland, Portugal, Romania, Slovakia and Sweden.

The regime also applies to other, less common IP rights such as Supplementary Protection Certificates and European Community Plant Variety rights, but it does not extend to Utility Models, Registered Designs or Trade marks.

A patent must be granted to qualify. However, once the patent is granted, the income derived from the patent while it was pending can be included in Patent Box for up to six years prior to grant. Once the patent has granted, the benefit will be calculated based on the later of the IP filing date and the accounting period in which the company elected into the Patent Box regime.

What are the benefits?

Patent Box is designed to incentivise and reward...