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 and Aviation
Security & Defence AgriTech Energy and Environmental
Pharmaceutical Life Sciences IT

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:

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 facts card

Find out the key features of Patent Box


Patent Box Tax Relief 

A guide to eligibility


How can Hazlewoods help?

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. Please contact a member of our team and they would be happy to help.

Content image: /uploads/team/unknown.jpg David Clift
David Clift
Partner, Innovation Taxes
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Content image: /uploads/team/unknown.jpg Jemma Vaughan
Jemma Vaughan
Partner, Innovation Taxes
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