Patent Box: Pay Just 10% Corporation Tax on Patent Profits
The Patent Box lets qualifying UK companies pay an effective 10% Corporation Tax rate on profits earned from patented inventions. With the main rate at 25%, this is a significant saving.
How Patent Box Works
Instead of paying the full 25% on all your profits, you can elect for Patent Box treatment on profits attributable to qualifying patents. The relief works by applying a deduction that reduces the effective tax rate to 10%.
Who Qualifies?
Your company must:
- Own or exclusively licence a qualifying patent
- Have created, significantly contributed to, or actively managed the patented invention
- The patent must be granted by the UK IPO, European Patent Office, or certain other EEA patent offices
What Counts as Patent Income?
- Sales of patented products (or products incorporating a patent)
- Licence fees and royalties received
- Damages or compensation for patent infringement
- Proceeds from selling the patent itself
The Nexus Fraction
Since 2016, the nexus fraction limits the benefit based on how much R&D was done in-house:
Nexus fraction = (Qualifying R&D expenditure × 1.3) / Total R&D expenditure
Maximum value is 1 (100%). The 30% uplift rewards in-house R&D.
CT600 Reporting
| Box | Description |
|---|---|
| Box 91 | Tick if claiming Patent Box |
| Supplementary CT600 | Patent Box deduction calculation |
Example
A software company holds a UK patent. Annual profits: £500,000, with £300,000 attributable to the patent.
| Item | Amount |
|---|---|
| Patent profits | £300,000 |
| Routine return deduction | (£20,000) |
| Nexus fraction | 90% |
| Relevant IP Profits | £252,000 |
| Normal CT at 25% | £63,000 |
| Patent Box CT at 10% | £25,200 |
| Annual saving | £37,800 |
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