5 things you need to know about Patent Box

Date: August 10, 2022

Take-up of Patent Box remains low and, although claims are growing year on year, only 1,405 companies made a claim in the latest year[1].

This is despite Patent Box coming with big rewards.

It nearly halves the rate of Corporation Tax by reducing profits derived from patented products and processes to an effective 10% tax rate compared to 19%. With the Corporation Tax rate about to increase to 25% for some companies (subject to any changes due to the change in Prime Minister), and the Patent Box effective rate likely to stay at 10%, the future tax savings will be even greater.

Anyone embarking on a patent application should have the benefits of Patent Box at the forefront of their minds from the outset. Here are 5 things you need to know about Patent Box.


1. Yes, it is complicated

There’s no getting away from it. Take-up is almost certainly as low as it is because the calculations, definitions and complexity of the scheme make this tax relief especially tricky to navigate. That’s why a large proportion of companies — even accountants — use specialists to make claims. It means they only have to provide their accounting and tax information.


2. Loss-making companies can still benefit

Companies making a loss from their patent income would be advised not to apply for Patent Box — but for some loss-making companies it might be a different story. Companies that make a profit from their patent, yet a loss overall, will still benefit as it increases the tax loss available to be offset elsewhere.


3. Place the patent in the company’s name

All too often, a patent is placed in an individual’s name as opposed to the company that undertook the development and goes on to exploit the patent. In this scenario, it is not possible to benefit from the relief without a sale or licensing of the patent to the company — leading to additional legal costs and potential income tax implications. Getting good advice from the outset is crucial, as it can help companies avoid this trap.


4. Don’t carry out R&D and then neglect a patent

So many companies carry out R&D and yet neglect to file a patent due to the cost and time involved. It means these companies are missing out on nearly halving their tax bill (recouping the patent costs many times over) and also the relief which would have been available while the patent is pending (this relief is rolled up and given once the patent is granted). A good patent attorney will be able to advise a company how best to apply for a patent if the main reason is for tax savings as opposed to Intellectual Property protection.


5. SMEs benefit too

Patent Box is not just for large corporations — SMEs can, and do, benefit too. The most official data shows a quarter of all claims (24%) were from SMEs1. The average benefit is £61k for SMEs, so it’s not to be sniffed at. With the R&D tax relief credit now capped for some companies unless they are creating or managing IP then applying for a patent will also ensure that the company is exempt from the cap.

Want to check if you are eligible for Patent Box? Our team of experts is here to help — just give us a call on 0300 303 1903.


1Patent Box relief statistics: September 2021

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