What qualifying intellectual property rights are eligible for Patent Box?

To qualify, a company must hold or exclusively license patents granted by the UK Intellectual Property Office (UK IPO), the European Patent Office (EPO), or specified national patent offices within the EEA (such as Germany, France, or Sweden). Pending patent applications do not yield immediate relief, but profits earned during the pending period can be rolled up and claimed retrospectively once the patent is officially granted.

What counts as Relevant IP Income (RIPI)?

Under Section 357CA CTA 2010, Relevant IP Income (RIPI) includes: (1) worldwide sales of products incorporating the patented invention (even if the patented component is only part of a larger commercial product); (2) royalties or licensing fees from granting rights over qualifying patents; (3) proceeds from the sale or disposal of patent rights; and (4) damages or financial compensation for patent infringement.

What is the Modified Nexus approach and how does it affect the calculation?

In line with OECD BEPS Action 5 recommendations, the UK modified its Patent Box regime to require a direct nexus between the R&D expenditure incurred by the company and the qualifying IP profits. The Nexus Fraction tracks direct in-house R&D and unconnected third-party subcontracting against connected-party subcontracting and IP acquisition costs, with a statutory 30% uplift factor. If a company develops its own IP in the UK, its nexus fraction is typically 100%.

Can small and medium-sized enterprises (SMEs) claim the Patent Box?

Yes. The Patent Box is open to companies of all sizes, from tech startups to multinational conglomerates, provided they are liable to UK Corporation Tax and hold qualifying patented rights. While large corporates frequently utilise the scheme, innovative SMEs that own patents can dramatically reduce their CT bills and enhance cash flow.

How is the Patent Box claim submitted to HMRC?

A company must make a formal statutory election under Section 357A CTA 2010 on its CT600 Corporation Tax return within two years of the end of the accounting period to which the election relates. The relief is claimed as an adjustment (statutory deduction) in the company's Corporation Tax computation.

Statutory CTA 2010 Part 8A Relief Engine

Patent Box Tax Calculator UK

Calculate Corporation Tax savings under the UK Patent Box regime. Model the 10% effective tax rate on qualifying IP profits, routine return deductions, and OECD BEPS Action 5 modified nexus fractions.

10% Effective RatePart 8A CTA 20102026/27 Tax Year

Patent Box Industry Scenarios (Part 8A CTA 2010):

Company Trading & Patent Financials

Enter gross revenues, patented sales, and qualifying R&D costs.

Total Turnover / Gross Income (£)

Relevant IP Income (RIPI) (£)

80.0% of total turnover is patented.

Total Taxable Trading Profit (£)

Company Corporation Tax Rate

Routine Trading Deductions (£)

Personnel, premises, and admin costs.

Marketing Royalty Return (%)

Benchmark return for brand intangibles.

R&D Nexus Fraction Tracking (CTA 2010 s.357BF)

OECD BEPS Action 5 requires the Patent Box benefit to reflect R&D carried out in-house or by unconnected subcontractors.

Direct In-House R&D (£)

Unconnected Subcontract R&D (£)

Connected Party Subcontract (£)

IP Acquisition Costs (£)

Calculated Modified Nexus Fraction: 100.0%

Patent Box Corporation Tax Benefit10% Effective IP Rate

Annual Corporation Tax Saved:

£116,280.00

Effective total CT rate reduced from 25% down to 15.3%

CT Without Patent Box:£300,000.00

CT With Patent Box:£183,720.00

Part 8A CTA 2010 Statutory Deduction Schedule

Relevant IP Income (RIPI):£4,000,000.00

Relevant IP Profit Share:£960,000.00

Less: Routine Return (10%):-£144,000.00

Less: Marketing Royalty Return:-£40,800.00

R&D Nexus Fraction Applied:100.0%

Qualifying Residual Profit (QRP):£775,200.00

Statutory Profit Deduction (s.357A):£465,120.00

Qualifying Rights: Eligible patents include those granted by the UK Intellectual Property Office (UK IPO), the European Patent Office (EPO), or specified EEA jurisdictions. The 10% rate applies to global worldwide sales of products embodying the patent.

Legislative Background

How the UK Patent Box Regime Works (CTA 2010 Part 8A)

Introduced to encourage innovation and retain commercial intellectual property in the UK, the Patent Box enables companies to elect for a preferential 10% effective Corporation Tax rate on profits generated from qualifying patents. With the UK main Corporation Tax rate set at 25%, Patent Box delivers a massive 60% tax reduction on qualifying income.

Rather than creating a separate tax return, the mechanism operates as a statutory profit deduction within your standard CT600 calculation. The deduction formula—specified in Section 357A CTA 2010—deducts an amount from trading profits such that the qualifying residual profits are taxed at exactly 10%.

The 6-Step Statutory Patent Box Calculation

Step 1: Calculate Relevant IP Income (RIPI)Identify income from sales of items incorporating a patent, IP royalties, patent disposals, and infringement damages. Determine the RIPI percentage of total turnover.

Step 2: Allocate Total Trading ProfitsApportion company taxable trading profits in proportion to RIPI to determine preliminary Relevant IP Profits.

Step 3: Deduct 10% Routine ReturnDeduct a statutory 10% routine return on routine business expenses (personnel, general overheads, premises) to isolate returns earned by IP rather than standard commercial operations.

Step 4: Deduct Marketing Royalty Return (MRR)Carve out the economic return attributable to brand value, marketing assets, and trademarks rather than the underlying patented technology.

Step 5: Apply the R&D Modified Nexus FractionScale the residual profit by the company's modified nexus fraction under BEPS Action 5, reflecting in-house and third-party R&D with a 30% statutory uplift.

Step 6: Compute the Corporation Tax DeductionMultiply Qualifying Residual Profit (QRP) by (Main Rate − 10%) / Main Rate (e.g. 60% at a 25% CT rate) to deliver the net 10% effective rate.

Frequently Asked Questions About Patent Box Tax Relief

Frequently Asked Questions

Clear answers based on official HMRC rules and statutory guidance.

The UK Patent Box regime—codified under Part 8A of the Corporation Tax Act 2010 (CTA 2010)—allows UK companies to elect for a reduced effective Corporation Tax rate of 10% on commercial profits derived from qualifying patented inventions. Against the standard 25% Corporation Tax rate, this provides an effective 15 percentage point tax saving (a 60% Corporation Tax reduction) on qualifying IP profits.

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Qualifying IP profits are not all profits

Patent Box requires qualifying rights, relevant development/ownership conditions, an election and a supported profit calculation.

Routine returns, marketing assets and the R&D nexus fraction can change the qualifying amount. A selected 10% illustration does not qualify all company revenue for that rate.

Check the rules for your circumstances

Patent Box

Official guidance supports the rules described here; it does not approve or certify this calculator. Confirm dates, eligibility and unsupported cases before making a financial decision.