The Patent Box provides a reduced rate of corporation tax for companies exploiting patented inventions or certain other innovations protected by particular intellectual property (IP) rights.
How it works
The reduced rate applies to a proportion of the profits derived from the licensing or sale of the patent rights or from the sale of the patented invention or products which incorporate the patented invention. Profits derived from routine manufacturing, development or exploitation of brands and marketing intangible assets are excluded.
The reduced rate of tax is given by providing an additional deduction in the corporation tax computation.
To minimise administrative costs, Patent Box profits for many claims can be calculated using a formulaic approach which is intended to identify, in most circumstances, a reasonable figure for profit derived from the patent. Companies can opt to identify the profit through a more detailed calculation.
The election allows a deduction to be made in calculating the profits of the trade period. The amount of the deduction is:
(RP x (MR – IPR)) / MR
- RP is the relevant IP profits of the trade of the company,
- MR is the main rate of corporation tax, and
- IPR is the special IP rate of corporation tax (10%).