The 10% tax rate is intended to be available regardless of how the company exploits its patent rights. Consequently, eligible Patent Box profits can arise from various income sources, including:
The tax incentive recognises that the patenting process takes some time. Although the Patent Box only applies to granted patents, there is effectively a ‘catch-up’ mechanism; profits arising from the patented technology for up to six years of the ‘patent pending’ period can be included in the Patent Box claim, for the year in which the patent is granted. Specific advice should be taken in this situation, as there are various considerations to be weighed up.
Patent Box profits can include those arising from sales of:
- Products protected by qualifying patents/rights
- Products incorporating one or more patented items (whole sale included, not just that relating to the patented item)
- Items designed to be incorporated into patent
Patent Box can apply where products do not themselves incorporate a patented item but are made using a patented process.
The notional royalty is the amount the company would expect to pay as a licence fee to an unrelated third party, if it did not itself hold the rights to the process.