The Patent Box lets a company that pays UK Corporation Tax apply a reduced effective rate of 10% to profits earned from patented inventions. It is open to companies that own or hold an exclusive licence over qualifying patents granted by the UK Intellectual Property Office, the European Patent Office or specified European Economic Area offices, and that have carried out qualifying development on those patents. The lower rate is delivered as a deduction in the tax computation rather than as a separate rate of tax, and the company must elect in.

What is the Patent Box?

The Patent Box is a Corporation Tax incentive designed to reward companies that commercialise patented inventions in the UK. Where a company earns profit from exploiting a qualifying patent, that profit can benefit from an effective rate of 10% rather than the normal main rate. The aim is to encourage businesses to keep and develop high value intellectual property, and the associated manufacturing and jobs, in this country.

The relief does not work by charging a second, lower rate of tax. Instead the calculation produces a deduction that reduces the profits chargeable at the main rate, so that the net effect is as if the relevant profits were taxed at 10%. Because it interacts with the wider Corporation Tax rules, it helps to understand how the tax itself works first. Our guide to Corporation Tax sets out the basics before you layer any relief on top.

How much tax does it save?

The value depends on how much of your profit comes from patented inventions and on your overall tax position. With the main rate at 25% and the Patent Box rate at 10%, the saving on qualifying profits can be meaningful, though the calculation that arrives at the qualifying figure is involved. It strips out a routine return on the activity and a notional marketing return, so that only the profit genuinely attributable to the patent benefits from the lower rate.

If your profits fall in the band between the small profits rate and the main rate, the way your effective rate is set matters here too. Our note on marginal relief explains how that band works, which is useful context when you are weighing up how much a Patent Box election is worth in practice.

Which companies and patents qualify?

To use the Patent Box a company must be liable to Corporation Tax and must profit from exploiting patented inventions. It also needs to own the qualifying patents, or hold an exclusive licence over them, and it must have undertaken qualifying development on them. That development condition means the company, or a group company, must have made a significant contribution to creating or developing the patented invention or a product incorporating it.

The patent itself has to be granted by an approved body. Qualifying patents include those granted by:

  • The UK Intellectual Property Office.
  • The European Patent Office.
  • Specified countries in the European Economic Area that examine patents to a similar standard.

Certain other medicinal and plant protection rights, such as supplementary protection certificates, can also qualify. A pending application does not give relief on its own, but once a patent is granted the rules allow profits from the years while it was pending to be brought into account, subject to limits.

How does the R&D nexus work?

For elections made under the rules that took effect from July 2016, the benefit is linked to the company’s own research and development through what is often called the nexus fraction. The principle is straightforward even though the arithmetic is not: the more of the underlying research and development a company carries out itself, the more of the patent profit qualifies for the 10% rate.

The fraction is reduced where a company has bought in the patent or paid connected parties to do the research and development for it. This keeps the relief pointed at genuine innovation done by the claimant rather than at intellectual property simply acquired from elsewhere. Because the same underlying activity often supports both reliefs, many companies claiming the Patent Box also look at research and development tax relief, and it pays to track the qualifying spend carefully so both claims stand up.

How do you elect in?

The Patent Box is not automatic. A company has to elect in, and there is a deadline. The election must be made within two years after the end of the accounting period in which the relevant profits and income arose. You can make it in the computations that accompany your Company Tax Return, or separately in writing to HMRC. Once made, the election continues to apply until it is revoked, though the detailed streaming and calculation still has to be worked through for each period.

Good record keeping underpins the whole thing. You need to be able to show which income streams relate to qualifying patents and how the qualifying profit was arrived at. The general framework for all of this sits within our accountancy and tax guide, which pulls the key business tax topics together in one place.

Protecting a Patent Box claim

Patent Box computations are detailed, and HMRC can open an enquiry into how a claim has been worked out even where everything has been done properly. Answering questions and evidencing the qualifying profit can take many hours of professional time. Solar Protect tax investigation insurance covers up to £100,000 of your accountant’s fees, with no excess, if a claim is enquired into, so a challenge does not turn into an unexpected bill. You can get a quote in minutes, and if you would like to talk it through first our team is happy to help.

Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.