The Patent Box: taxing profit from a patented invention at 10%

Written by Peter Allen MAAT, co-founder and Finance Director of Buzz Accounting, with more than 20 years in accountancy · 21 October 2026

The Patent Box lets a company apply a 10% rate of Corporation Tax to the profit it makes from a patented invention, instead of the 19% small profits rate or the 25% main rate. It only covers patents, not trade marks, copyright, registered designs or trade secrets, and the benefit can be reduced if the patent was bought in or the research behind it was paid for by a connected company (HMRC Patent Box guidance).

Which patents qualify

The patent must be granted by the UK Intellectual Property Office, the European Patent Office, or the patent office of one of thirteen named European Economic Area countries: Austria, Bulgaria, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Poland, Portugal, Romania, Slovakia and Sweden. A small number of medicinal and plant-related rights, such as supplementary protection certificates and plant variety rights, also qualify. A company can own the patent outright or hold an exclusive licence to it.

The company, or another company in the same group, must also have carried out qualifying development: a significant contribution to creating the patented invention, or to developing a product or process that uses it. A company that licenses in a patent it played no part in developing, and does nothing more to it, does not qualify. Most funded startups meet this condition without extra work, because the patent usually protects something the founders or their engineering team built.

How the relevant IP profit is worked out

HMRC's calculation starts from relevant IP income: money from selling the patented product, including bespoke spare parts for it, licence fees for the patent, proceeds from selling the patent itself, and damages or compensation for someone infringing it. A company that uses a patented process or tool to manufacture something without selling a patented product directly can still bring in a notional royalty for using it.

That income's share of the company's total trading profit gives a starting figure. HMRC then deducts a routine return, a standard margin for the ordinary running of the business that would have been earned without the patent, and a marketing return for the value of the company's brand and marketing rather than the invention itself. Every company in the Patent Box since 1 July 2021 has to work this out separately for each patent or product line, a process called streaming, instead of one figure for the whole business.

The R&D fraction

What is left after those deductions is then multiplied by the R&D fraction, which restricts the benefit where the company bought in the patent or paid a connected company to do the research behind it. If the company did the qualifying development itself, paid no connected company for related research, and did not buy the patent in, the R&D fraction is 1 and the full amount qualifies for the 10% rate. A startup that developed its own invention in-house, with its own staff or unconnected contractors, is usually in this position.

Worked example (illustrative). Harlow Diagnostics Ltd holds a UK patent on a point-of-care blood test device it designed and built itself, with no connected-company research and no bought-in IP, so its R&D fraction is 1. In the year to 31 March 2027 its taxable trading profit is £420,000, taxed at the 25% main rate, giving Corporation Tax of £105,000 before any Patent Box claim. Sales of the patented device and its cartridges make up £1,080,000 of Harlow's £1,800,000 turnover, 60%. Applying that 60% to the £420,000 profit gives £252,000 of profit linked to the patent. After deducting a routine return and a marketing return that HMRC treats as unconnected to the invention itself, illustrated here at £62,000, £190,000 is left as relevant IP profit, taxed at 10% instead of 25%. Corporation Tax for the year becomes (£230,000 × 25%) + (£190,000 × 10%) = £57,500 + £19,000 = £76,500, a saving of £28,500 against the £105,000 it would otherwise owe.

A patent that is still pending

A granted patent is needed before any Patent Box benefit can be claimed, but the wait does not have to cost the earlier years. Once a patent is granted, a company can elect to bring in the relevant IP profit it would have had for the period the application was pending, going back up to six years before the grant date (HMRC's Corporate Intangibles Research and Development Manual, CIRD220540). To use this, the company needs to have elected into the Patent Box for those earlier accounting periods within the normal time limit for each one, so a startup with a patent application in progress should elect in now rather than waiting for the grant letter.

Electing in

There is no application form. A company elects into the Patent Box by including it in the computations attached to its Company Tax Return, or in a separate letter to HMRC, and the election must be made within two years after the end of the accounting period the relevant profit or income arose in. A late election cannot be accepted. The election carries on applying to later periods until the company withdraws it.

Patent Box and R&D tax relief together

A company can claim both. R&D tax relief reduces the taxable profit for the accounting period the qualifying work was done in, through the merged scheme's expenditure credit or Enhanced R&D Intensive Support. The Patent Box is applied afterwards, to whatever profit from the patented invention is left once that relief, and everything else in the Corporation Tax computation, has been worked out. The two reliefs reward different things: R&D relief for the cost of the research, the Patent Box for the profit the resulting patent goes on to earn.

What to do this week

List every UK or European patent the company holds or exclusively licenses, and check which office granted it against the qualifying list.
For each one, confirm that the company, or a group company, carried out the qualifying development, and did not simply buy in a finished patent.
Work out roughly what share of turnover comes from products or services that use the patent, to see whether a claim is worth preparing.
If a patent application is still pending, elect into the Patent Box for the current accounting period now, inside the normal two-year time limit, so the years since filing can be brought in once it is granted.
If the company already claims R&D tax relief, check with whoever prepares that claim whether a Patent Box claim should sit alongside it.

Our R&D tax relief page covers the merged scheme the research itself is claimed under, and our guide to corporation tax for startups covers how reliefs like this fit into the rest of the computation. Patented hardware is common among the deep tech and biotech startups we work with.

Where we help

We check which of your patents and products qualify, work out the relevant IP profit and the R&D fraction, and prepare the election and the Patent Box computation inside your Company Tax Return. Patent Box work is priced per job and quoted in writing before we start, and your monthly accounting fee comes from the instant quote. Get started.

Common questions

What is the Patent Box and what rate does it give?

The Patent Box lets a company apply a 10% rate of Corporation Tax to the profit it makes from a patented invention, instead of the 19% small profits rate or the 25% main rate that would otherwise apply. It covers patents only, not trade marks, copyright, registered designs or trade secrets. A company elects in, works out how much of its profit is linked to the patent, and applies the lower rate to that part of its Corporation Tax computation.

Which patents qualify for the Patent Box?

A patent granted by the UK Intellectual Property Office, the European Patent Office, or the patent office of one of thirteen named European Economic Area countries. A small number of medicinal and plant-related rights, such as supplementary protection certificates and plant variety rights, also qualify. The company must own the patent or hold an exclusive licence to it, and the company or another company in its group must have carried out significant development work on the invention or a product that uses it.

Does a startup need to be part of a group to use the Patent Box?

No. A standalone company can use the Patent Box as long as it meets the ownership and development conditions itself: it owns or exclusively licenses the patent, and it carried out the qualifying development on the invention or a product that uses it. The extra condition about actively managing a whole portfolio of patents only applies where the patent sits inside a group of companies, to stop a group claiming the relief through a company that did none of the development work itself. Most single-company startups with one or two patents of their own do not need to consider this condition at all, and can go straight to working out their relevant IP income and the R&D fraction.

What counts as relevant IP income?

Money from selling a product covered by the patent, including bespoke spare parts for it, licence fees for the patent, the proceeds of selling the patent itself, and damages or compensation paid because someone infringed it. A company that uses a patented process or piece of equipment to manufacture something, without selling a patented product directly, can still bring in a notional royalty for using it. Income from products or services that do not use the patent is left out.

What is the R&D fraction, and when is it 1?

The R&D fraction restricts the Patent Box benefit where the company bought in the patent itself, or paid a connected company, such as another company in the same group, to do the research behind it. It is worked out separately for each patent or product line, and it falls as more of the acquisition or connected-party research cost grows relative to the company's own spending. It is 1, giving the full benefit with nothing restricted, where the company carried out the qualifying development itself, using its own staff or unconnected contractors, without buying in the patent or paying a connected company for the related research. Most startups that developed their own invention in-house, instead of acquiring it from elsewhere in a group, are in this position and keep the full 10% benefit on their relevant IP profit.

Can we claim Patent Box relief before our patent is granted?

Not for that period on its own, but the wait does not have to cost you the earlier years. Once the patent is granted, you can elect to bring in the relevant IP profit for the period the application was pending, going back up to six years before the grant date. To use this, the company needs to have elected into the Patent Box for those earlier accounting periods within the normal time limit for each one, so elect in while the application is still pending rather than waiting for the grant letter.

How do we elect into the Patent Box, and is there a deadline?

There is no application form and no box on the Company Tax Return itself. You elect by including it in the computations attached to that return, or by writing to HMRC separately, and the election must be made within two years after the end of the accounting period the relevant profit or income arose in. A late election cannot be accepted, so a company planning to claim for a period should elect before that two-year window closes instead of waiting until the claim itself is being prepared. Once made, the election keeps applying to every later accounting period automatically, with no need to re-elect each year, until the company actively withdraws it.

Can we claim R&D tax relief and the Patent Box at the same time?

Yes. R&D tax relief reduces the taxable profit for the accounting period the qualifying research was done in, through the merged research and development expenditure credit scheme or, for loss-making R&D-intensive companies, Enhanced R&D Intensive Support. The Patent Box is applied afterwards, in a separate step, to whatever profit the resulting granted patent goes on to earn once that relief and the rest of the Corporation Tax computation have already been worked out. The two reliefs reward different things: R&D relief for the cost of the research itself, the Patent Box for the profit the patent later brings in. A company with both qualifying research spending and a granted patent on the invention that research produced can claim both in the same accounting period.