Patent box ― relevant IP losses

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Patent box ― relevant IP losses
  • The set-off amount
  • Order of relief
  • Company ceasing to carry on a trade

The patent box legislation states that a company may elect that any relevant IP profits of a trade for accounting periods during which it is a qualifying company are chargeable at a lower rate of corporation tax (currently an effective rate of 10%). See the Patent box ― overview guidance note. In certain circumstances it is possible that the result of the calculations performed in arriving at the relevant IP profits will be negative. This figure is known as a relevant IP loss.

CTA 2010, s 357A(1)

A company which has an IP loss is unlikely to elect into the patent box regime until it is in a profitable position. This is because the losses can only be relieved in a certain way (see below), which is more restrictive than other types of losses, such as trading losses. For example, a standalone company will only be able to relieve the patent box losses against patent box profits, thereby obtaining relief for the losses at a reduced rate of corporation tax, rather than at the main rate.

However, a company may have already elected into the patent box regime and then subsequently become loss making. The ways in which relevant IP losses may be utilised are set out in CTA 2010, ss 357E–357EF, and are explained in more detail below. See also Simon’s Taxes D1.1121 (subscription sensitive).

The set-off amount

A company which would be entitled to make a patent box deduction, but for the fact that it gener

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