Last updated: 14 October 2026
What is the Patent Box and how does it benefit businesses?
The Patent Box lets UK companies pay corporation tax at an effective rate of 10% on profits from patented inventions, instead of the main rate of 25%. It applies to profits from selling patented products, licensing patents, or products that contain a patented component. The company must own or have an exclusive licence to a qualifying patent granted by the UK Intellectual Property Office, the European Patent Office or certain other offices, and must have carried out qualifying development. Companies opt in by making an election within 2 years of the end of the accounting period.
How the relief works
| Step | What happens |
| Identify relevant IP income | Sales of patented items, licence fees, royalties, damages |
| Deduct routine return | 10% of certain costs, representing normal profit |
| Deduct marketing return | Profit from branding, for larger claims |
| Apply R&D fraction (nexus) | Restricts relief if R&D was outsourced to connected parties or IP bought in |
| Result: relevant IP profits | Deduction gives effective 10% rate |
Who can benefit
- Manufacturers selling patented products
- Technology companies licensing patents
- Life sciences and engineering companies
- Smaller companies with a single patented product
Profits must be taxable in the UK, and the company must be actively managing the IP.
Example
TechSeal Ltd sells a patented valve and makes £1 million of taxable profit, all from the patented product. After deducting a routine return of £150,000 and a small marketing return, its relevant IP profits are £800,000. Instead of paying 25% on these, it pays an effective 10%, saving £120,000 a year in corporation tax.
Patents pending
Profits earned while a patent is pending can be included once the patent is granted, for up to 6 years before the grant, provided the company elects in.
Working with R&D relief
Patent Box and R&D relief work well together: claim the merged R&D expenditure credit or enhanced R&D intensive support while developing the product, then use the Patent Box on profits once it’s patented.
Is it worth it?
- Most useful where patented products produce significant profits
- The calculations need careful records of income streams
- Smaller companies may use the small claims election for simpler streaming
Common mistakes
- Missing the 2-year election deadline
- Not tracking costs for the nexus fraction
- Claiming on products without a granted patent
- Ignoring the routine and marketing returns
Records to keep
Keep patent grant certificates, licence agreements, sales records for patented products and R&D cost records.
How the deduction is given
The Patent Box isn’t a separate tax rate in the return. The company calculates its relevant IP profits and claims an additional deduction in the CT600, which reduces taxable profits so the overall effect is 10% on those profits. Companies with profits under £50,000, paying the 19% small profits rate, gain less because the gap between their rate and the 10% target is smaller.
Frequently asked questions
Do sole traders qualify?
No, only companies.
Can I claim on a licensed-in patent?
Only with an exclusive licence and qualifying development.
Is there a minimum profit?
No.
Can losses be used?
Relevant IP losses are set off against IP profits.
Related: SEIS investment relief, the best business structure and whether to incorporate.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with Patent Box claims. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
