This will provide an additional incentive for companies to commercialise existing patents and to develop new innovative patented products.


From 1 April 2013, companies will be able to elect to phase in a reduced rate of corporation tax for profits generated from qualifying patents and limited other forms of intellectual property (IP). The reduced rate is 10% (expected to be lower for small companies) which will be staggered in from 2013, and fully effective from April 2017.


New as well as existing patents granted from the UK Intellectual Property Office, the European Patent Office, and patent offices of certain individual EEA countries will qualify. Certain other IP rights can also qualify. If you own, or have an exclusive licence in the patent, then that licence should also qualify. Certain conditions regarding development and active management have to be met.

Income from the following sources is treated as qualifying:

  • patent licensing and royalties
  • sales income from the patent or patent protected products even if the patent only applies to a small part of the total product
  • patents used in processes or services
  • patent right damages for infringement.

There is a formula to assess the IP profits to which the reduced rate of corporation tax can be applied, and among other things this will exclude the effect of enhanced R&D relief, finance income and expenses, the profit attributable to marketing and brands and a standard mark-up to take account of a 'routine return'.

It can be complex to capture the data to perform the required calculations, though the calculations can be simplified for companies with smaller profits. In view of the short time to its introduction it may be appropriate to review how qualifying IP is held within your business and the capability of systems and procedures for capturing the required data.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.