Our Innovation specialists take a personal and proactive approach in helping you to navigate through the complexities of this dynamic sector and to maximise your opportunities. Our aim is to ensure that all relevant aspects are considered in the development and implementation of your business strategy.

What is the Patent Box?

The UK Patent Box is a generous tax incentive. Innovative companies will pay tax on their Patent Box profits at just 10% compared to the current main rate of corporation tax of 25%.

The Patent Box complements existing, valuable tax incentives for Research and Development (R&D). In principle, therefore, tax incentives are now potentially available for the whole of the innovation lifecycle; from costs of development through to generation of profits from the resultant improved technology, if it is patented.

What intellectual property does Patent Box apply to?

Intellectual property (IP) rights qualifying for the Patent Box include:

  • Existing patents as well as new patents are eligible for the 10% tax rate.
  • Patent rights which are acquired from third parties can also be eligible for the 10% Patent Box tax rate, provided that the claimant company has done further work in developing the intellectual property or a product into which it is incorporated.
  • Patent rights licensed in by a company are also eligible for the Patent Box, provided that the licence provides exclusivity at a national level.

What kind of businesses can claim Patent Box tax relief? Here are some examples:

  • Manufacturing
  • Engineering
  • Aerospace & Aviation
  • Security & Defence
  • AgriTech
  • Energy & Environmental
  • Pharmaceutical
  • Life Sciences
  • IT

Companies that might qualify for the Patent Box are recommended to seek specialist tax advice at the earliest opportunity so that eligibility and appropriate planning may be considered.

What profits are eligible for Patent Box?

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:

  • Sales of patented products or products incorporating patented items
  • Licence fees and royalties derived from rights in the qualifying IP
  • The sale of qualifying IP rights or exclusive licences in respect of such rights
  • Amounts received in respect of infringement or alleged infringement of qualifying IP rights
  • ‘Notional royalties’ from use of patented processes*

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.

Patent Box client story

Established in 1998, Auger Torque Europe develops and produces hydraulic attachments for the construction and agricultural industry. The continuing demand for transportation and infrastructure is constantly driving product development and service. As a result, the company is continuously expanding its product range.

Since 2013 Hazlewoods has worked closely with Auger Torque to understand the composition of the company’s sales and the nature of the patented technology, to assist the company in identifying the relevant income and profits for Patent Box purposes.

Mike Cartwright, Chief Financial Offiicer at Auger Torque Europe, said:

“Hazlewoods has been a great support to Auger Torque. They have taken the time to understand our business and the products that we sell and used this knowledge to submit successful R&D and Patent Box tax relief claims to HMRC.”

Meet the team

Hazlewoods made a complicated claim process relatively straightforward for us. The services provided to us in respect of R&D and Patent Box reliefs has been invaluable.

Jon Curtis, Group Finance Director of TBS Engineering Limited