What Is the Patent Box?

The Patent Box is a tax incentive introduced by the UK government to encourage companies to commercialise innovation by reducing the Corporation Tax rate on profits derived from patented inventions and certain IP rights.

• Standard rate: 25% on profits from 1 April 2023 for profits over £250,000.
• Patent Box rate: could be a flat 10% on profits attributable to qualifying patents — delivering a 15 pp tax saving.

Why It Matters Now

1. Corporation Tax rise
2. The main rate rose to 25% in 2023, making the 10% Patent Box rate far more valuable.
3. Increasing take-up
4. In 2022–23, around 1,600 companies claimed Patent Box relief, totalling £1.47 billion—up from £1.33 billion the year before.
5. Tightened HMRC focus
6. Since the “nexus” reform in July 2021 and the introduction of compliance guidelines in November 2024, HMRC scrutinises claims more closely, highlighting the need for thorough documentation.

Who’s Eligible?

Your company is likely eligible if:

• It’s a UK limited company liable for Corporation Tax.
• You actively own or have exclusively licensed‑in a granted UK, EPO, or select EEA patent.
• The patent is granted, not just pending.
• You’ve participated in qualifying development (R&D) for the patent or product.
• You elect into the Patent Box within 2 years of the end of the relevant accounting period.

Additional points:

• Even “minor” patented components can qualify for the entire profits from related products.
• It covers more than just products — also processes, licenses, royalties, and infringement damages.
• For group companies, the nexus requirements and active ownership rules apply.

How It Works, in 6 Steps

1. Identify Eligible Patents

You must hold or exclusively license at least one granted patent from:

• UKIPO, EPO, or certain EEA countries.

2. Verify Qualifying Development

You need to show that you contributed significantly to the development of the invention or its incorporation into your product.

3. Elect Into the Regime

Make the election in your CT600 or a separate letter within two years of the relevant accounting period.

4. Stream Your Profits

Allocate profits and costs to each qualifying patent (called “streaming”) and calculate the relevant IP profit.

5. Apply the Nexus R&D Fraction

Since July 2021, you must calculate how much qualifying R&D was done in relation to the patented invention versus acquired or outsourced R&D.

6. Submit with Your Return

You include the Patent Box calculations with the Corporation Tax return. HMRC expects detailed documentation, following their GfC9 compliance guidance (Nov 2024).

What Profits Qualify?

Qualifying income sources include:

• Product sales involving the patented invention.
• Licensing income or royalties from the IP.
• Sale of patent rights themselves.
• Damages or compensation due to infringement.

It’s crucial to independently allocate income/profits to the patent-related element of your business.

The Value of the Savings

Here’s a simplified numerical example:

Item Amount

Patent‑related profit            £1,000,000

Standard CT rate (25%)      £250,000

Patent Box CT rate (10%)   £100,000

Annual tax saving £150,000

Over 20 years (patent lifespan), that’s £3 million in savings, relative to a 25% CT rate.

What’s Changed Since 2021

• “Nexus” R&D fraction requires tracked R&D contributions to each patented product.
• Streaming mandate: Each patent/product family must be profiled separately.
• Bookings checker: HMRC now expects detailed documentation and has published a GfC9 guideline to reduce error risk.

Common Pitfalls & Best Practices

• Incomplete patent documentation
• Always note grant dates, expiry dates, and maintain active renewals.
• Underestimating Nexus rules
• Keep project-by-project R&D records, especially when outsourcing or licensing in.
• Improper streaming
• Avoid blending routine business profits with patent-derived income.
• Late election
• A forward claim must be made within two years — no backdated window.

Why It’s a Smart Strategic Move

• Fuel innovation: Tax savings can be reinvested into longer-term R&D or product upgrades.
• Improve margin: A permanent 15 pp tax advantage boosts profitability and ROI.
• Competitive edge: Patent Box rewards commercialised innovation — aligning with your engineering-first philosophy.
• International alignment: The UK’s regime follows OECD-approved “nexus” rules, future-proofing it.

How Optima Supports You

As a product design and engineering partner, Optima goes beyond creating patentable innovation — we help you maximise its commercial and strategic value:

1. Identify patentable features that fit your market and roadmap.
2. Collaborate with patent attorneys to draft strong technical disclosures + CAD support.
3. Track qualifying R&D — ensuring compliance with nexus and streaming rules.
4. Prepare technical documentation ready for HMRC’s GfC9 expectations.
5. Support claim submission: a full Patent Box technical annexe.
6. Advise as your patent portfolio grows, maintaining compliance with legislation changes.

Supporting Case Study — (Preview)

Optima helped a UK med-tech SME patent a novel sensor mechanism. Within months of the global product launch, they filed for Patent Box. The result: a 10% CT rate on sensor profit streams, saving over £ 250,000 annually.

Is It Right for You?

Ask yourself:

• Do you have a granted patent or plan to file one in a UK/EEA territory?
• Is your team actively developing the invention — in-house or with partners?
• Do you track R&D project costs, and can you map them to the patent?
• Do you currently have a streamlined tax strategy in place?

If so, you could be just weeks away from unlocking a significant and strategic tax relief.