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
Patent Box is not reported via a dedicated CT600 box — there is no supplementary page for it either. The election is made under Section 357A of the Corporation Tax Act 2010, either within the tax computation or by letter to HMRC.
The Patent Box deduction reduces your taxable trading profits, which you report in Box 155 of the CT600. HMRC's own guidance for Box 155 states that you should "account for any Patent Box deductions (read Section 357A of the Corporation Tax Act 2010)" when computing the figure.
Your tax computation — the document attached to the return that shows how you arrived at your taxable profit — must include a detailed calculation of the Patent Box deduction. This is where the full workings sit; the CT600 itself just receives the resulting adjusted profit figure in Box 155.
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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