Who should be considering Patent Box?

By James Allen, technical writer at ABGi UK

The attractions of Patent Box are clear.

Paying just 10% corporation tax, as opposed to the Main Rate of Corporation Tax of 25%, on profits from patented inventions is a genuinely appealing incentive to innovative UK businesses, and is designed by government to encourage companies to keep and commercialise intellectual property in the UK.

The question is, why so few claimants?

Patent Box will not be suitable for all. So, who should be seeking to benefit from the scheme, that isn’t already?

In 2024, only 1,600 companies did. Compare that to the over 65,000 claimants of R&D tax relief and it is fair to assume that more could be benefiting from Patent Box.

So, who should be?

Consider the lifecycle of innovative businesses. It is often the case, that in the early years, R&D is at its most intense.

As the business matures, it will (hopefully) begin to transition from loss-making to profitability and from growth to maturity. Typically, in this period, the intensity of R&D also begins to mature.

Businesses that should be seriously considering Patent Box will be those that can perceive either future revenue and profitability growth (paying more tax), or seriously considering the value of their IP assets and commericalising and protecting their inventions and products, ahead of time.

Entrepreneurs that have benefited from the R&D Tax Relief scheme for a number of years and are attuned to the R&D development lifecycle of their own company, are in prime position to seriously assess the benefits of the Patent Box Tax Relief scheme.

The key is to patent strategically. Regardless of how proportionally significant to the wider product, all product revenue incorporating the patent is eligible.

If the patented component is just an element of a much larger product, the revenue of the whole product will be included in the Patent Box – provided it’s an integral component.

A good analogy here is the car. Perhaps the vehicle features a small, patented chipset. Regardless of how seemingly insignificant, the revenue of the whole vehicle – not just the patented chipset will be eligible.

The greater the proportion of revenue that features patented products, the greater the Patent Box benefit will be.

Of course, patent applications take time – often several years – as well as upfront application costs.

Unlike, other tax incentives, however, the Patent Box is not restricted to the current financial year. Provided you’ve already elected into the scheme, claims can be retrospectively applied to all revenues going as far back as the date the patent application was made – not when it was granted.

This is not inconsequential.

One ABGi client, a small, hardware manufacturer’s first Patent Box claim resulted in a benefit of £3,000. The following year this had multiplied to £30,000. This example is not uncommon. The potential benefits of Patent Box are undoubtedly significant but far too few are incorporating the scheme into their IP planning.

The scheme is highly complex and has gone through a number of significant changes since its introduction in 2013, most recently last year, requiring claimants to include significant supporting materials to accompany the claim made through tax computations.

These updated guidance notes (GfC9) were brought in with no notice and were of immediate effect, a signal that not enough is being done by some advisors or claimants to support their claims. It possibly signals a move to something similar to the AIF mandated in R&D Tax Relief claims.

ABGi has always provided these detailed reports and is the acknowledged safe pair of hands to guide you through the complex and detailed process from evaluation to claim.

If you are keen to know more, then get in touch with ABGi. for a no obligation consultation. Our acknowledged experts in the tax incentive space are ready to discuss your suitability for Patent Box.

For more information about the latest GfC9, visit: https://www.gov.uk/government/publications/help-with-patent-box-computations-gfc9/help-with-patent-box-computations-gfc9