Business Owners · Reliefs and incentives
Patent Box: a 10% corporation tax rate on profits from patented inventions
How the Patent Box gives a 10% corporation tax rate on profits from patented inventions, who can claim it, and how it sits alongside R&D relief.
On this page12 sections
Key points
- 1A 10% rate applies to profits from qualifying patented inventions
- 2Your company must own or exclusively license the patent and have contributed to the development
- 3Profits have to be separated out, usually by streaming
- 4The election is made within two years of the end of the accounting period
If your company has developed a patented invention and is now making profit from it, the Patent Box may let you pay corporation tax on those profits at 10% instead of the main rate. It is one of the UK's most generous reliefs for technology, but only for companies with real patents, real development and good records. We help owner-managed businesses test whether it fits and, if it does, claim it properly.
Who this is for
The Patent Box suits companies that have patented something they developed, such as medical devices, engineering components, software-driven hardware, chemical or materials processes and specialist machinery. It also suits companies that license a patent to others and receive royalties.
It does not help companies that merely use other people's technology, or whose profits do not come from the patented invention. If you are still developing the invention and are not yet profitable, R&D tax credits are more likely to be the relief that matters now, and the Patent Box becomes relevant later.
How the Patent Box works
The relief is an election by a company liable to corporation tax. Once made, it applies a reduced rate of 10% to profits from patented inventions. The main rate is 25% for profits over £250,000 for the year from 1 April 2026, so the gap can be large for a profitable technology business.
To qualify, the company must own the patent or hold an exclusive licence, have carried out qualifying development, and earn qualifying income from the invention. The patent must be granted by the UK Intellectual Property Office, the European Patent Office or specified European Economic Area countries.
The tests that matter
Nexus. The company, or another group company, must have made a significant contribution to creating or developing the invention or a product containing it. In a group, the company must actively own the invention and play a significant role in managing the patent portfolio.
Qualifying income. Sales of patented products, licensing, sale of patent rights and infringement income can all qualify. Where a patented process or tool is used to make or deliver something, a notional royalty approach may be available.
Streaming. Profits that qualify have to be separated from those that do not. This is where most of the practical work lies.
The R&D fraction. If you acquired the patent or paid connected parties for the R&D, the relief can be restricted. Costs of development done in-house or by unconnected subcontractors do not restrict it in the same way.
Where the Patent Box fits in a wider structure
The Patent Box is rarely a stand-alone decision. Which company owns the patent, which employs the developers and where the profits arise all affect the result. In a group, intellectual property sometimes sits in a holding company, a founder's name or a dormant entity, because that was convenient when the first patent was filed. Moving it later can have tax and stamp consequences, so it is worth getting right early.
The relief also sits alongside other decisions. Profitable technology businesses often consider a holding company to protect cash and intellectual property from trading risk. Investors may want EIS or SEIS in place before the patent produces profit. And a future buyer will look closely at who owns the IP and how the relief was calculated, which matters for your exit.
What to have ready before you claim
Before electing, gather the evidence in one place:
- the patent certificates and renewal records, with dates and territories;
- proof of ownership or the exclusive licence;
- a record of who developed the invention, where, and when;
- the accounts and cost records needed to stream profits;
- any assignments, licences or connected-party payments.
If this evidence exists from the start, the claim is quicker to prepare and much safer if HMRC asks questions.
Making the election
The election is made in your Company Tax Return computations or by writing to HMRC. It must be made within two years after the end of the accounting period in which the profits arose, so earlier years may still be open. Keep your patent register, the development records and your streaming method together, because HMRC may ask for them.
Common mistakes
- Not owning the patent. The patent sits in the founder's name or another company, so the trading company cannot claim.
- No development evidence. The nexus test depends on records of who did the work and where.
- Streaming that is too crude. Applying the 10% rate to profits that include non-patent income invites challenge.
- Ignoring connected-party costs. Payments to other group companies for R&D can reduce the relief through the R&D fraction.
- Missing the election window. Two years passes quickly.
How we help
We check ownership and qualification of your patents, assess nexus, design a streaming approach that is simple to run, and model the saving after tax. Where intellectual property is in the wrong place, we look at whether a holding company or restructure would help. We also coordinate the claim with your R&D relief and your funding plans.
Is it worth the effort?
The honest answer is: sometimes. The relief matters most to profitable companies paying the 25% main rate, with a patent that drives a clear share of profit and records that show who developed it. It matters less to a company with small profits, a patent that supports only a minor product line, or no one able to produce development records.
We start with a short feasibility review. It tells you whether the likely saving justifies the work, and what would need to change if it does not yet.
Why ASWATAX
Advice is led personally by Omar Aswat, a Chartered Tax Adviser. We aim to give you a plain-English answer: whether the Patent Box is worth the effort, what it saves, and what you must keep in place to protect it.
Talk to us
If your company holds patents and is making profit from them, book a free first call. We will tell you honestly whether the relief is worth pursuing.
01 · Guide in progress
The Patent Box and IP Tax Guide
How to turn patented technology into a lower tax rate, from ownership and nexus to streaming and elections.
Talk it through instead
Our The Patent Box and IP Tax Guide is being written. In the meantime, a 20-minute call with a Chartered Tax Adviser is free.
Book a free callWe reply the same working day.
Often handled together.
- ServiceR&D Tax CreditsHow the merged R&D expenditure credit and ERIS work for accounting periods from 1 April 2024, and how to claim without inviting an HMRC enquiry.Read the page
- ServiceHolding CompanyWhen a holding company helps an owner-managed business, when it does not, and how it fits your plans for growth, a sale or the next generation.Read the page
- ServiceEIS/SEISHow EIS and SEIS help early-stage companies raise money and give investors tax relief, with the limits that apply from 6 April 2026.Read the page
- ServiceThe Business LifecycleA stage-by-stage map of the tax decisions a business owner faces, from start-up structure to exit and succession, with links to the service for each.Read the page
From the journal.
Questions, answered.
Straight answers to what clients ask us most. Your own situation may differ, so treat them as a starting point.
Q1What is the Patent Box?
It is a corporation tax relief that lets a company pay tax at 10% on profits from qualifying patented inventions, instead of the usual 19% to 25%. It applies to profits from selling patented products, licensing patent rights and certain related income. It rewards companies that develop and own valuable technology in the UK, and it must be elected into by the company.
Q2Who can claim the Patent Box?
A company liable to corporation tax that makes profits from exploiting patented inventions, owns the patent or holds an exclusive licence, and has carried out qualifying development. The development can be by the company itself or, in a group, by another group company. Sole traders and individuals cannot claim, so incorporated status matters.
Q3Which patents qualify for the Patent Box?
Patents granted by the UK Intellectual Property Office, the European Patent Office or specified European Economic Area countries can qualify. A pending application is not enough on its own. If your invention is protected in other ways, such as by trade secrets, it will not benefit. We check what you hold and where, before building any plan around it.
Q4What is the nexus requirement?
Nexus links the relief to real development work. The company, or another group company, must have made a significant contribution to creating or developing the invention, or a product containing it. In a group, the company must actively own the invention and play a significant role in managing the patent portfolio. Without that substance, the relief is not available.
Q5What is qualifying income for the Patent Box?
It includes sales of patented products or bespoke spare parts, licensing or selling patent rights, infringement income, and patent-related damages or insurance receipts. Manufacturers using a patented process, or a service provider using a patented tool, can often use a notional royalty to work out the profit. Ordinary income unrelated to the patent does not qualify.
Q6What is streaming and why does it matter?
Streaming means separating profits that qualify for the Patent Box from profits that do not, so the 10% rate only applies to the right part. Good records, a sensible allocation of costs and a clear method are essential. Weak streaming is the commonest reason these claims are challenged or reduced, which is why we agree the method before the figures are prepared.
Q7How do I claim or elect into the Patent Box?
You elect in your Company Tax Return computations or in writing to HMRC, and the election must be made within two years after the end of the accounting period in which the profits arose. No special wording is required. Because elections are made for a period, it is worth reviewing earlier years that are still within time.
Q8Is the Patent Box worth it for a small company?
It can be, but only where the patent produces real profits. A company with modest profits and a 19% small profits rate gains less than one paying the 25% main rate. The compliance work, including streaming and R&D calculations, also has a cost. We model the saving first, and tell you if the effort outweighs the benefit.
Q9Can I claim the Patent Box and R&D relief together?
Yes, they work in different ways. R&D relief gives a credit for the cost of developing the technology, while the Patent Box reduces tax on the profits it later produces. The Patent Box calculation can be affected by how R&D costs are treated, so the claims should be prepared consistently by the same adviser.
Q10What is the R&D fraction and when does it apply?
Where the company acquired the patent or has paid connected parties to carry out the R&D, the benefit can be restricted. The R&D fraction compares the company's own development spend with total spend, including acquisition costs and connected-party payments. If everything is done in-house or by unconnected subcontractors, deductions are generally unrestricted. Group structure and who does the work therefore matter.
Q11Can a group use the Patent Box?
Yes, and the group structure often matters more than people realise. Where one company owns the patent and another carries out the development, nexus and the R&D fraction decide how much qualifies. Intellectual property sometimes sits in the wrong entity for tax. We can review ownership and whether a restructure would help, as part of wider holding company planning.
Q12What happens if my patent expires or is revoked?
Profits from the patent stop qualifying once the protection ends, so the relief only covers the period you hold valid patent rights. If a patent is challenged and revoked, HMRC may look again at earlier claims. Keep patent renewal dates and any legal challenges on your tax calendar and tell us about them promptly.
Q13How does the Patent Box affect the sale of a company?
Buyers value predictable tax profiles, and a well-documented Patent Box claim can support the price. Equally, they will test the claim in due diligence, so weak records can reduce value. The way the intellectual property is held can also change what you pay on a sale. This is best planned well before you reach the exit stage.
Q14Can I claim for profits from before I elected into the Patent Box?
Only for accounting periods still within the two-year election window. If your company has been profitable from a patented product for several years and never elected, earlier periods may be closed, though the current and previous period often remain open. It is therefore worth reviewing the position as soon as you realise a patent is producing profit, not at the next year end.
Q15Does my software or app qualify for the Patent Box?
Only if it is protected by a granted patent that qualifies. Software as such is generally excluded from patent protection in the UK, though inventions that use software to achieve a technical effect can sometimes be patented. Copyright, trade marks and trade secrets do not qualify. If your value sits in code alone, R&D relief is usually the more relevant incentive.
05 · Next step
Talk it through with Omar.
The first call is free. You'll speak to a Chartered Tax Adviser, and leave with a clear view of your options.
We reply the same working day.
