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Patent Box

Companies are able to pay a lower rate of corporation tax on profits which have arisen from sales that include an element on which a patent is held. The patent can be restricted to being a UK patent only, making it far easier and cheaper to obtain.

For example, if a motor manufacturer sells a new car for £50,000 and that vehicle contains a part worth £1,000 on which the manufacturer holds a valid patent, then THE WHOLE of the profits from the £50,000 sale benefit from the reduced rate of corporation tax.

Unlike R & D tax relief, Patent Box relief does need to be applied for in advance through an election. Great care is needed with this process. For example, if the company incurred a loss from the sales, then those losses may not be available to be offset against other profitable areas and the company could be worse off.

Companies that benefit from both R & D tax relief and Patent Box need to be aware that whilst some costs will benefit from up to 230% tax relief under R & D tax relief in the pre-production period, as the profits and costs under Patent Box will reduce down to only a 10% tax liability, the expenses connected with the post-production period may then only qualify for a reduced rate of corporation tax relief of as little as 10%.

Companies can obtain patents, and so obtain the tax benefits, on items including physical products and certain software.