Upcoming changes to the patent box regime

Upcoming changes to the patent box regime

Lyn Murphy, manager in the tax team at Scott-Moncrieff, caught up with BQ to let us know a little bit more about the patent box regime...

From 1st April 2013, company profits earned from the exploitation of patents have been able to be taxed at 10%, a rate significantly less than that charged on other company profits.

The 10% tax rate has been phased in over a five year period, meaning that the full relief is not available until April 2017.

The Organisation for Economic Co-operation and Development (OECD), however, has deemed the UK patent box regime as a ‘harmful tax practice’ as multinationals were commonly relocating to the UK to take advantage of the regime.

This has prompted a change in the rules from the UK Government. As a result, the patent box regime will be replaced by a new scheme and the current regime, for those companies that have currently opted in, will disappear from 2021.

Therefore, if companies do not elect into the regime prior to the 30th June 2016, or if they register patents after this date, they will not be able to benefit from the current patent box regime and will have to consider the new scheme instead.  

The new scheme is complex and places an even higher administrative burden than the current regime, which is itself complex.

The relief available may also be restricted by the ‘nexus fraction’ – this is a very complicated calculation which, in simple terms, restricts the relevant patent box profits able to benefit from the lower tax rate to those that relate to substantial R&D undertaken by the company.

For companies who have not yet opted into the current regime, it is possible to elect in now to benefit from the rules as they are until 2021. However, in order to do this they must elect into the patent box before the 30th June 2016. 

One drawback to opting into the current patent box regime when a loss is being made is that a patent box loss will only be available to offset a relevant patent box profit in the future, therefore limiting the tax relief to 10%.


Lyn Murphy is a manager in the tax team at Scott-Moncrieff.

T: 0131 473 3500

E: lyn.murphy@scott-moncrieff.com


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