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UK guide

The UK Patent Box, explained

By , Co-founder, PatentAssist.ai
Updated

The Patent Box lets a UK company pay corporation tax at 10% on the profits it earns from patented inventions, against a main rate of 25%. It is set out in Part 8A of the Corporation Tax Act 2010 and has applied since 1 April 2013. It is also one of the main commercial reasons a UK business patents at all: the relief follows the patent, so a granted UK or European patent that covers what you sell can be worth far more than its filing fees. This guide explains who qualifies, how the profit is calculated, the nexus fraction, the election, and a worked example.

Quick answer

  • Rate: an effective 10% on relevant IP profits, given as a deduction (s. 357A CTA 2010).
  • Qualifying patents: granted by the UK IPO, the EPO or one of 13 listed EEA states, plus SPCs, regulatory data protection and plant variety rights.
  • Conditions: the company owns the patent or holds an exclusive licence, and it (or its group) made a significant contribution to developing the invention or a product using it.
  • Nexus: the profit is scaled by an R&D fraction, (D + S1) × 1.3 ÷ (D + S1 + S2 + A), capped at 1.
  • Election: within 12 months of the return filing date for the first period, about 2 years after the period ends.

How the 10% rate is delivered

There is no separate 10% line in the tax return. Instead the company deducts an amount from its trading profits so that the relevant IP profits end up taxed as if at 10% (s. 357A CTA 2010):

Patent Box deduction = RP × (AR − 10%) ÷ AR

RP is the relevant IP profits and AR the applicable rate: the small profits rate where the company pays it, otherwise the main rate (CIRD201020). The main rate has been 25% and the small profits rate 19% since 1 April 2023, for profits over £250,000 and under £50,000 respectively (gov.uk). At 25%, the deduction is 60% of RP and the tax saved is 15% of RP. At 19% the saving is 9% of RP. The relief was phased in and has applied in full since 1 April 2017.

It is a large relief in aggregate. HMRC provisionally estimates that 1,735 companies elected into the Patent Box in the 2024 to 2025 financial year, and that the relief was worth £2,283 million, up from £1,857 million the year before. Large companies received 95% of it (HMRC statistics, September 2026).

Which patents and rights qualify

The rights the regime covers are listed in ss. 357BB and 357BBA (CIRD210150):

  • patents granted by the UK IPO under the Patents Act 1977;
  • patents granted by the European Patent Office;
  • national patents of the EEA states named in the Profits from Patents (EEA Rights) Order 2013: Austria, Bulgaria, Czechia, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, Sweden (CIRD210160);
  • rights similar to patents: supplementary protection certificates, marketing authorisations with data or marketing protection, and plant breeders' and plant variety rights.

The list explains some filing choices. A French or Italian national patent does not qualify; a European patent covering the same invention does. A US patent does not qualify either, so a UK company selling mainly in the US still needs a UK or European patent on the same invention to bring those sales into the Patent Box. See how to file a UK patent application and how to file a European patent application.

Conditions the company must meet

  • It holds the right. The company owns a qualifying right or holds an exclusive licence to one (CIRD210100). An exclusive licence has to cover a whole national territory, exclude everyone including the licensor, and let the licensee bring infringement proceedings or take most of the damages (gov.uk).
  • Development condition. The company, or a company in its group, made a significant contribution to creating or developing the patented invention or a product incorporating it (CIRD210200). A company that buys a finished patent and does nothing with it does not qualify.
  • Active ownership, for groups. A group company must actively manage substantially all of its qualifying rights, for example deciding where to keep protection, what to license and which products to take to market (CIRD210210).

Patents pending. A company with an application on file can elect in before grant. In the period the patent is granted, it can then bring in the profits earned since the application was filed, for up to 6 years before grant (s. 357BM, CIRD220540). The clock starts from the application date of a qualifying patent, not the priority date of an earlier filing elsewhere. So for Patent Box purposes, the date you file in the UK or at the EPO matters.

Which income counts

Relevant IP income comes from selling the patented product or products that incorporate it (bespoke spare parts included), licensing the rights out, selling them, infringement income, and damages, insurance or other compensation for the rights (gov.uk). If the company uses a patented process to manufacture, or a patented tool to provide a service, it can count a notional royalty instead. One patented component can bring a whole product into the calculation, which is why the scope of the claims matters so much: a claim that reads on what you actually sell is what puts the income in the box.

Calculating the relevant IP profits

The calculation in s. 357BF has seven steps (CIRD220100):

Steps in the Patent Box calculation
Step What How
1 to 3 Stream the income Split trading income into relevant IP income and the rest, then into sub-streams by IP right, product or product family, and deduct expenses on a just and reasonable basis.
4 Routine return Deduct 10% of routine costs (premises, personnel, plant and machinery, capital allowances, professional and miscellaneous services). What is left is the qualifying residual profit (QRP).
5 Marketing assets return Deduct the profit that comes from brands and marketing. Often nil. Small claimants can instead take 75% of QRP, capped at £1 million.
6 R&D fraction Multiply each sub-stream by the nexus fraction, which shrinks the profit if R&D was bought in from connected parties or the IP was acquired.
7 Add up Total the sub-streams to get the relevant IP profits (RP), then claim the Patent Box deduction in the corporation tax computation.

Routine return. The 10% mark-up on routine costs represents what a business would earn without any unique IP (CIRD220430). Legal fees for patent applications and enforcement are not routine costs, so they are not marked up (CIRD220440).

Marketing assets. The marketing assets return is nil if the notional marketing royalty is less than 10% of QRP, which HMRC expects for many businesses selling to other businesses on technical specifications (CIRD220490). A company with QRP up to £1 million, or up to £3 million if it has made the same election in earlier years, can elect for small claims treatment instead and take 75% of QRP, capped at £1 million (CIRD220470 and CIRD220480). Small claims treatment is only available to a company with one trade.

The nexus fraction (R&D fraction)

Since 1 July 2016, following the OECD's BEPS work on harmful tax practices, the relief has been tied to the company's own R&D spending. Every company has used these rules since 1 July 2021, when the grandfathering of the old regime ended (CIRD200120). The fraction for each sub-stream is (s. 357BLA):

R&D fraction = (D + S1) × 1.3 ÷ (D + S1 + S2 + A), capped at 1

  • D: qualifying R&D spending in-house (staff, software, data licences, cloud computing, consumables, externally provided workers, clinical trial payments).
  • S1: R&D subcontracted to unconnected persons.
  • S2: R&D subcontracted to connected persons.
  • A: the cost of acquiring the qualifying IP rights.

The 1.3 uplift means up to roughly 30% of R&D can go to group companies or acquisitions with no loss of relief. If there is no R&D or acquisition spending at all, the fraction is 0, not 1. The fraction is cumulative, reviewed every year, and counts spending back up to 20 years, so you need to "track and trace" R&D costs to each patent, product or product family from the start (CIRD274100).

Worked example

A UK company with one trade sells a product covered by its granted European patent. Its total profits are well over £250,000, so it pays the 25% main rate. For the year:

  • Profit in the patented-product stream after expenses: £1,000,000.
  • Routine deductions in that stream: £1,000,000, so the routine return is £100,000 and QRP is £900,000.
  • QRP is under £1 million, so it elects for small claims treatment: 75% of £900,000 is £675,000.
  • R&D on the product: £400,000 in-house, £50,000 with a university (unconnected), £150,000 with a sister company (connected), nothing acquired. R&D fraction: (£400,000 + £50,000) × 1.3 ÷ £600,000 = 0.975.
  • Relevant IP profits: £675,000 × 0.975 = £658,125.
  • Patent Box deduction: £658,125 × (25% − 10%) ÷ 25% = £394,875.

Tax saved: £98,719, which is 15% of the relevant IP profits. Had the sister company done all £600,000 of the R&D, D and S1 would be nil, the fraction would be 0 and there would be no relief on this stream.

Making the election

The election is a notice in writing that names the first accounting period it covers. There is no prescribed form; a computation that claims the deduction counts if the intention is clear. The last day is the last day the company could amend its return for that first period, which is 12 months after the return's filing date (CIRD260100). HMRC's own guidance puts it as within 2 years after the end of the accounting period (gov.uk). The election covers every trade of the company and every later period until it is revoked. There is no late election: if you miss the window for a year, that year is out.

IP boxes elsewhere in Europe

Several EU countries run their own regimes on the same OECD nexus principle. A few, with the rate their tax authority publishes:

IP box regimes in other European countries
Country Rate Scope
Netherlands Innovatiebox 9% effective rate For profits from innovative activities covered by an S&O declaration from RVO ( Belastingdienst )
Ireland Knowledge Development Box 10% effective rate from 1 October 2023 (6.25% before) Extended to accounting periods starting before 1 January 2027 ( Revenue )
France Article 238 CGI regime 10% reduced rate On the net result from licensing, sub-licensing or selling patents and similar assets, with a nexus ratio, for years from 1 January 2019 ( BOFiP )

Each regime has its own definition of qualifying assets and its own nexus calculation; the UK list of qualifying patents does not carry over. For a French filing, see how to file a French patent application.

The relief starts with the patent

PatentAssist.ai is not a tax tool and does not calculate Patent Box relief; that is work for your tax adviser. What it does is the step before: it drafts patent applications in EPO format, with claims you can shape around the product you actually sell, and searches EPO, USPTO and Indian patent data free so you know the prior art before you spend on filing. See AI patent drafting and prior art search.

Try drafting free for 7 days How the drafting works

More UKIPO guides

All guides, by patent office

The UK Patent Box: frequently asked questions

What is the UK Patent Box rate?

10%. Qualifying profits are taxed at an effective 10% instead of the main corporation tax rate, which has been 25% since 1 April 2023. The reduced rate is delivered as an extra deduction in the tax computation, not as a separate tax rate on the CT600.

Do European patents qualify for the Patent Box?

Yes. Patents granted by the UK IPO and by the European Patent Office both qualify, as do national patents from 13 EEA states listed by order: Austria, Bulgaria, Czechia, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia, Sweden. A US, Chinese or French national patent does not qualify on its own, though a European patent covering the same invention does.

Can I use the Patent Box before my patent is granted?

You can elect into the regime while the application is pending and track the profits. When the patent is granted, a further election lets you bring in the profits from the pending period, back to the application date and for up to 6 years before grant, in the accounting period of grant. That election is due within 12 months of the filing date of the return for that period.

What is the deadline for a Patent Box election?

The election must be made within 12 months of the filing deadline of the company tax return for the first accounting period it is to cover, which in practice is 2 years after the end of that period. It can be made in the computations with the return or separately in writing, and it applies to all later periods until revoked.

What is the R&D fraction in the Patent Box?

It is the nexus fraction that links the relief to the company's own R&D. It equals (D + S1) × 1.3 divided by (D + S1 + S2 + A), capped at 1, where D is in-house R&D, S1 is R&D subcontracted to unconnected parties, S2 is R&D subcontracted to connected parties and A is the cost of acquiring the IP. A company that does all its own R&D gets a fraction of 1.

Is the Patent Box worth it for a small company?

It can be, but the gain is smaller. If the company pays the 19% small profits rate, the deduction is calculated against 19% rather than 25%, so the saving is 9% of the relevant IP profits rather than 15%. The small claims treatment, available where the qualifying residual profit is up to £1 million, simplifies the marketing assets step to a flat 25% reduction.

Sources: Corporation Tax Act 2010, Part 8A, ss. 357A and 357BLA; HMRC Corporate Intangibles Research and Development Manual, CIRD200000 onwards; Use the Patent Box to reduce your Corporation Tax; Corporation Tax rates and allowances; Patent Box relief statistics, September 2026; Belastingdienst, Innovatiebox; Revenue, Knowledge Development Box; BOFiP, article 238 CGI. Checked 26 October 2026. This guide is general information, not tax or legal advice. Confirm your position with a tax adviser before making or relying on an election.