Patent Box Regime In The UK

Published date10 June 2020
AuthorMr Sudhansu Sahoo
Subject MatterIntellectual Property, Tax, Patent, Corporate Tax, Tax Authorities
Law FirmKhurana and Khurana

The Patent Box is a special corporate tax regime in which the patent revenues are taxed differently from other commercial revenues. This was first introduced in Ireland in the early 1970s wherein there was an absolute relief of tax from licenses that were patented in Ireland.

The United Kingdom introduced a Patent Box scheme in April, 2013 taxing qualifying Intellectual Property at a reduced rate of 10% rather than the normal corporate tax rate of 20%. The Patent Box in the UK is a tax incentive regime designed to encourage companies to keep and commercialize their patents and innovations by reducing the UK tax paid on those profits. The United Kingdom Government wished to support the high-value growth in UK public limited company through a competitive tax regime that supports UK R&D from conception to commercialization. The Patent Box forms a key part of this strategy by encouraging companies to retain and commercialize their patents and R&D in the UK. The companies willing to do so must elect into the Patent Box to apply the lower rate of corporation tax i.e. 10 percent. The regime is largely applied to patents but other medicinal and botanical innovations can also take advantage of this regime.

Who can benefit from this regime?

A company can use the Patent Box regime if:

  • It is liable to pay the corporation tax.
  • It makes a profit from exploiting patented inventions and innovations that qualify under this regime.
  • It either owns or has exclusive license in the patents.
  • It has taken qualifying development of the patents.
  • The Patent is granted by the UK Intellectual Property Office or the European Patent Office.
  • The Company is a member of the group of companies that worked in a particular invention, and has active ownership of the invention and take a significant role in managing its whole portfolio of patented inventions.

It is mandatory for the companies to elect into the Patent Box for acquiring benefits of the reduced rate of corporation tax. It shall be done within 2 years after the end of the accounting period in which the relevant profits and income arose. An election to the patent box can be made either in computations that should accompany the company's Tax return or separately in writing, there is no special form of words for election in the patent box.

Income/Profit covered under this regime?

In order to qualify for the patent box regime, the company should be liable to UK corporation tax and should make profit by exploiting the qualifying...

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