Is Patent Box Relief more valuable than ever?

In today’s innovation-led economy, businesses developing intellectual property (‘IP’) have a valuable opportunity to reduce their corporation tax burden by claiming patent box relief. As one of the most effective – yet often underutilised – tax incentives available to innovative UK companies, the patent box relief regime can deliver significant corporation tax savings on profits derived from exploiting eligible patented products, processes, or services.

What is patent box relief, and how does it work?

Profits generated from exploiting qualifying IP are subject to a lower corporation tax rate of 10% as opposed to the small profits rate of 19% or the main rate of 25%.

The increase in the main rate from 19% to 25% from 1 April 2023 has significantly increased the potential corporation tax savings from claiming patent box relief and made the regime even more attractive.

How much tax can be saved with patent box relief?

The savings can be substantial. For example, a company subject to the main corporation tax rate of 25% that generates a £1 million profit from exploiting eligible IP could save up to £150,000 in corporation tax by claiming patent box relief, subject to several other factors.

Who can benefit from patent box relief?

Companies of all sizes can enjoy the benefits of patent box relief if they are exploiting qualifying IP rights and satisfy the eligibility criteria.

Qualifying IP rights include patents granted by certain IPOs, rights similar to patents, including human and veterinary medicines, plant breeding and plant varieties, or an exclusive license to exploit such patents and rights.

Types of income that can qualify include sales of a patented invention, sales of an item incorporating a patented item, leasing or renting items which incorporate qualifying IP, licence fees and royalties, including on process patents, disposal proceeds, and other forms of compensation, including damages and infringement income.

One of the lesser-known opportunities is the ability to claim relief on patented packaging, even if the contents of the packaging are not patented. Where patented packaging plays a functional role in the product’s delivery, usability, or performance, it is possible to include all the income generated within the patent box regime, not just the income attributable to the packaging. For companies innovating in areas like dispensing systems, protective casings, or smart packaging technologies, this presents a valuable and often overlooked opportunity to unlock significant tax savings.

Are companies still benefitting from patent box relief?

HMRC has estimated that just 1,650 out of approximately 11.68 million registered companies have elected into the patent box regime, despite the potentially substantial financial benefits on offer.

For the 2023–24 period, HMRC projects that £1.977 billion in corporation tax relief will be claimed, equating to an average claim value of nearly £1.2 million per company; this is an increase of over 35% compared to figures for the 2022-23 period.

This sharp rise in value, driven largely by the increase in the main rate of corporation tax to 25%, highlights the growing importance of the patent box for IP-rich businesses. Despite this, uptake remains low, suggesting many companies may be missing out on a powerful incentive to support innovation and reduce corporation tax payable.

Should I claim patent box relief?

Absolutely. For companies with qualifying IP income, the patent box claim process can unlock significant tax savings. It’s a strategic tool that can not only reduce tax payable but also encourage continued investment in innovation.

If you’re unsure whether your business qualifies, or wish to explore how much you could save, get in touch with our team. We’ll help you navigate the rules, assess your eligibility, and make the most of this valuable incentive.

How can AAB help?

At AAB, we understand that navigating the patent box regime can be complex—but the rewards are worth it. Our innovation taxes team is here to help you unlock the full value of patent box relief by:

• Assessing your eligibility: we’ll determine whether your company and its IP qualify for the regime.
• Evaluating commercial impact: we provide clear, data-driven insights into the potential value of a claim, helping you make informed decisions.
• Simplifying the process: from identifying qualifying IP to preparing documentation and managing HMRC compliance, we take care of the details, giving you peace of mind and confidence in your claim.
• Maximising savings: we ensure your patent box claim works in harmony with other incentives like R&D tax credits, so you get the most out of your innovation strategy.

Whether you’re an sme or a larger business, we’ll guide you through every step with a proactive, client-focused approach. Our team has extensive experience in delivering robust and successful patent box claims, and we’re here to help you realise the full benefit of your investment in IP.

If you’d like to explore how the patent box could apply to your business, please contact Andrew Blair from our innovations tax team or speak to your usual AAB contact.