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Patent Box

The patent box regime, which has been around since 2013, enables companies to pay corporation tax at a reduced rate (10%) on its income from patents and similar Intellectual Property (“IP”). Such income includes royalties and sales of goods, services and processes as long as they comprise as a component, the patent.

The rules are however, changing and will generally be less beneficial. Under the new rules the benefits must be linked to actual Research & Development (“R&D”) expenditure.

The new rules require the company to identify separate streams of income for each IP asset  and then split the allowable deductions between those income streams on a just and reasonable basis to calculate the profit for each stream. This is then modified to reflect the proportion of the development activity on that particular IP asset.

The timings for the changes are as follows:

  • Existing IP within the current regime can continue to benefit from the old regime until 30 June 2021.
  • IP acquired from related parties after 1 January 2016 will not be eligible under the new rules unless that IP already qualifies under an existing IP regime.
  • Companies that have not already elected into the regime by 30 June 2016 can still elect within two years after the end of the accounting period, in respect of pre-1 July 2016 profits, provided that they satisfy the conditions by 30 June 2016.
  • Subject to these rules, the current regime will be closed to new entrants from 1 July 2016.

Companies need to consider these changes carefully and ensure their reporting systems are adequate to provide the relevant inputs the new streaming and nexus calculations.



Date: 23rd March, 2016
Author: Jacqui Gudgion


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