What is Patent Box?
The UK Patent Box regime is designed to encourage innovation by reducing the corporation tax rate on profits generated from patented technology. Instead of paying corporation tax at 25%, qualifying profits are taxed at an effective 10% rate.
You may qualify if your business holds a patent granted by the UK Intellectual Property Office, the European Patent Office, or certain EEA states. Eligible income that can benefit is wide-ranging, including:
- Selling or hiring out patented products
- Products incorporating patented components and bespoke spares
- Licensing arrangements
- Royalties
- Infringement proceeds
- Profits generated using patented manufacturing or service processes.
As patents may have a life of up to 20 years, the Patent Box regime can provide significant long-term tax savings for your company.
Why early collaboration with a patent attorney and tax adviser matters?
In our experience, the Patent Box works best when both advisers are involved early in the development process. At this stage:
- Patent attorneys can help you identify patentable opportunities while your designs are still flexible
- Key technical and financial evidence can be captured as part of the natural workflow
- Patent attorneys can secure the right scope of protection, while we assess how that scope aligns with the Patent Box
- You avoid the risk of missing out on relief because decisions were made too late.
A narrow patent claim, for example, might be enough to bring an entire product line into the Patent Box. But a narrow claim may not defend your commercial position well. On the other hand, a broad patent provides a stronger protection but may not always give the most efficient tax result.
By working together, Hazlewoods can help you balance both objectives. The solution may be a dual-patent strategy:
- A broader patent coverage for commercial protection
- A narrower, patent coverage to maximise tax efficiency.
This approach ensures your innovation is protected and tax efficient.
How Patent Box links with R&D claims
Patent Box and R&D tax relief often go hand in hand. The R&D claim sets out the technical narrative behind your innovation, helping demonstrate the development condition required to be met for Patent Box eligibility. Similarly, applying for a patent can help demonstrate within your R&D tax relief claim that the technology is being advanced or appreciably improved.
Involving us in the process from the start enables us to help you to:
- Recognise and document the innovative advances, and scientific or technological uncertainties being addressed, as they occur, helping to make the preparation of the R&D Report easier and smoother
- Set up your accounting and stock systems to capture all relevant income and costs from the start to ensure your financial data is not overlooked when reviewing at the year end and to be able to monitor your products’ profitability or the costs of a development project on a line by line basis
- Ensure the structure of the group, origin of the relevant expenditure and ownership of any eventual IP rights are aligned with the opportunities for maximising both R&D and Patent Box tax relief claims.
How Hazlewoods can help
Our innovation tax specialists work closely with trusted patent attorneys to provide a joined-up service. We can help you:
- Identify Patent Box opportunities early
- Shape patent strategy with tax efficiency in mind
- Structure IP ownership and licensing arrangements
- Prepare clear, compliant Patent Box and R&D claims
- Build strong, contemporaneous records to support HMRC requirements
If you would like to explore how the Patent Box could apply to your business, or how early collaboration can strengthen both your IP protection and tax position, our Innovation team would be happy to help.
