Glossary · UK
What is Patent Box?
A UK tax regime applying a reduced 10% Corporation Tax rate to profits earned from patented inventions and certain qualifying IP.
Full Definition
The Patent Box is an elective UK Corporation Tax regime introduced by the Finance Act 2012. Companies that elect into the Patent Box can apply a reduced 10% Corporation Tax rate to profits attributable to qualifying patents and certain other intellectual property rights, instead of the standard 25% CT rate. Qualifying patents must have been granted by the UK Intellectual Property Office (UK IPO) or the European Patent Office (EPO), or by certain equivalent EEA national offices. The company (or a member of its group) must have made a significant contribution to the creation or development of the patented invention. Since 1 July 2016, the Patent Box uses a "nexus" approach, where the proportion of qualifying profits eligible for the reduced rate is determined by the ratio of qualifying research and development expenditure to total development expenditure on the IP (the "nexus fraction"). This ensures that only profits attributable to R&D carried out by the company or group benefit from the lower rate. The Patent Box is intended to encourage companies to retain and commercialise patents in the UK and to invest in R&D. Companies must make an election within two years of the end of the accounting period in which they wish to apply the regime. Relief is given as a deduction from taxable profits in the Corporation Tax computation.