Ask the Expert: Behind the scenes of Patent Box calculations: MAR and NMR

Patent Box is often seen as a relatively straightforward exercise: apply a reduced tax rate to profits linked to a patent, and you’re done. In reality, there’s more going on behind the scenes to ensure those calculations are accurate, compliant, and genuinely reflect the value of the patented innovation, especially for companies with strong brands and significant marketing activity.

One example of this is MAR (Marketing Asset Return) or more specifically NMR (Notional Marketing Royalty).

To explain this in more detail, we spoke with Taylor Franchetti, Innovation Funding Consultant at ABGi, about Marketing Asset Return (MAR), Notional Marketing Royalty (NMR), and the role they play in ensuring Patent Box calculations accurately reflect the contribution of patented technology.

Q | Hi Taylor, tell us how most businesses tend to view Patent Box calculations?

A lot of businesses I speak to see Patent Box as a numbers exercise. Once you’ve identified the relevant income and costs, the assumption is that you can apply the calculation and arrive at a tax benefit.

That’s partly true, but between “patent income” and “Patent Box profit” there is a whole series of adjustments that HMRC expects you to make. That’s because Patent Box is designed to reward profits generated by patented technology, not profits driven by brand strength, reputation, or marketing. If you don’t separate those elements properly, the calculation can overstate the benefit and fall outside what HMRC expects to see.

Q | So where do MAR and NMR come into that?

Marketing Asset Return (MAR) is essentially a mechanism to strip out the portion of profit that relates to marketing assets, like brand recognition, rather than the patented invention itself.

A common way of doing that is by calculating a Notional Marketing Royalty (NMR). This is an estimated royalty that represents what you might pay to use the brand, if it were licensed separately. That notional value is then deducted as part of the Relevant IP Profit calculation, after routine returns have been accounted for, so that only the patent-driven profit benefits from the reduced tax rate.

It becomes particularly relevant for companies where brand plays a big role in why customers buy the product.

Q | That sounds quite subjective. How do you arrive at a fair NMR?

It can be, which is why it needs to be approached carefully. Where a clear internal rate isn’t available, we look externally. That usually means benchmarking against comparable agreements, using royalty databases and industry data to identify a reasonable range. From there, we assess where the company sits within that range based on factors like market position, product type, and brand strength.

The focus is on landing on a rate that you can justify, one that reflects how similar assets are valued in the market and would stand up to scrutiny if challenged.

Q | Can you give us a real life example?

A good example would be a sports goods manufacturer we worked with, operating at a global level with several well-known brands. They held a patent for a surface pattern that improved grip and handling, which was used across a number of their products. We worked with them to identify the relevant product lines, extract the associated income and costs, and allocate expenditure appropriately within the profit and loss account.

The complexity came from the strength of the brand. A significant proportion of their revenue was linked to brand recognition and marketing activity, not just the patented feature itself. Applying MAR was essential. We worked with the business to benchmark the brand and establish a notional marketing royalty that reflected its value. Once that adjustment was made, the remaining profit more accurately represented the contribution of the patented technology. By taking that approach, the claim remained compliant and the company realised a tax benefit of over £70,000.

Q | What would your advice be to companies approaching Patent Box for the first time?

I’d say don’t treat it as a purely mechanical calculation. There’s a bit more judgement involved than people expect, especially when you’re dealing with brands, multiple product lines, or shared costs. Taking the time to understand what’s really driving your profits makes a big difference, both in terms of compliance and the overall value of the claim.

MAR and NMR are a good example of the kind of work that happens behind the scenes. They’re not always visible in the final numbers, but they do a lot of the heavy lifting in making sure those numbers are robust and defensible.

We hope Taylor’s insights have been helpful – If you have any questions about Patent Box or how it applies to your business, please get in touch with ABGi, and a representative will get back to you to discuss your specific situation.