The short answer is, ‘yes, you can get tax relief on the money you make from patents’. It is part of the government’s drive to promote R&D across the UK’s business world.

The more interesting and complicated question is ‘how do I get patents tax relief?’

What is ‘The Patent Box’?

‘The Patent Box’ is the government’s initiative to encourage companies to make more money from their patents by providing specific tax relief for earnings from patent sales. You can find out more about the Patent box in our free patent box guide.

How much is this patents tax relief worth?

A reduced rate of 10% corporation tax is applied to any profits made from the sale of your “patented inventions”. That’s half of the current 20% rate, which is not a bad saving.

Who is eligible to apply for Patent Box tax relief?

As with any HMRC scheme, there are detailed eligibility criteria for your business. If you are part of a group of businesses, it doesn’t mean you are automatically excluded, but there are different rules.

The basics are:

  • You pay UK Corporation Tax
  • Your company owns the patent or has exclusivity in terms of licencing-in the patents
  • Your business has “undertaken qualifying development on them” (HMRC)
  • You profit from the sale of patented items or other Intellectual Property that you own the rights to

If you tick all of these boxes, then it’s worth delving further into which patents are included and what “qualifying development” means.

At the same time some companies can qualify for research and development tax credits for certain types of projects.

Which patents are included in The Patent Box?

Any patents issued by the UK Intellectual Property Office or that of the European Patent Office, which includes all countries in the EEA.

Interestingly this also includes patents “which relate to human and veterinary medicines, plant breeding and plant varieties.”

What does “qualifying development” mean?

This means that you can’t just own the patent, you must either have invented the original item pertaining to the patent or developed a new product which comprises the patented item. This satisfies the R&D element of the tax relief.

If this sounds like something your company should be applying for, you can find out which income sources are applicable and how to maximise your application in our Patent Box Guide. Or give us a call, and let us sort out the paperwork.

 

Jamie Smith