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Introduction to the patent box regime

The aim of the patent box regime is to provide an incentive for companies to develop and retain patents and other qualifying intellectual property within the UK.

It applies to companies within the charge to corporation tax that actively hold qualifying patents. Qualifying companies can elect for a reduced effective rate of corporation tax of 10% to apply to the income generated from the relevant patents (‘relevant IP profits’). The reduced rate of corporation tax is given effect by allowing a deduction to be made in the calculation of the company’s total taxable profits, rather than by actually applying a reduced rate of tax to the relevant IP profits (as illustrated below). Patent and non-patent profits are therefore not separated and taxed at different rates in the corporation tax computation, although detailed calculations must be performed to identify the relevant IP profits themselves.

The benefits provided by the patent box regime have become more valuable with the increase in the UK main corporation tax rate from 19% to 25% from