Muras Matters: The Patent Box: A Patently Underclaimed Tax Relief

The Patent Box: A Patently
Underclaimed Tax Relief


The Patent Box was introduced on 1 April 2013, to give tax relief to income and gains received by a limited company and earned through patented items. The relief works by applying a lower tax rate to the related profits, with the tax rate reducing year on year to 10% by 1 April 2017.

The rules on the Patent Box were changed with effect from 1 July 2016 so that the eligible profits are now linked to the research and development (“R&D”) tax relief claimed on the work which lead to the patented item, even if this work took place in previous years.

Patent income

Relief may be due if a company receives the following types of income:

  1. Income from the sale of the patented item or an item incorporating it;
  2. Licence fees and royalties from rights that the company grants others out of its own rights over the patented item;
  3. Income from the sale or the disposal of the patent;
  4. Amounts received from others accused of infringing the patent; and
  5. A notional arms length royalty for the use of the patent to generate otherwise non-qualifying parts of the company’s total gross income, if they are derived from exploiting the patented item.

The relevant profits are calculated in a complex way, attributing costs and a notional marketing expense before applying the reduced rate of corporation tax.

Number of claims by SME’s

According to figures recently released by HM Revenue & Customs, the Patent Box is hugely underclaimed as shown below:

Patent Box claims R&D claims
Company size Number of companies % Number of companies %
Large 225 32% 3,805 17%
SME claims 465 66% 18,630 83%
Unknown size 10 1%
700 100% 22,435 100%

Therefore, while SME’s make over 18,000 R&D claims, only 465 claims were made for the Patent Box. In addition, SME’s account for 83% of the number of R&D claims, but only 66% of all Patent Box claims come from companies of this size.

If your company receives patent income or if you would like more information in connection with this please contact our Tax Director, Jenny Marks.

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