Corporation Tax

Patent box ― relevant IP losses

Produced by Tolley
  • 19 Oct 2021 22:53

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Patent box ― relevant IP losses
  • Calculating relevant IP losses
  • The set-off amount
  • Multiple trades
  • Allocation of set-off amount within a group
  • Carry forward of set-off amount
  • Company ceasing to carry on a trade
  • Transfer of trade between group members
  • Payments between group members

Patent box ― relevant IP losses

Calculating relevant IP losses

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 effective rate of corporation tax (currently an effective rate of 10%). See the Patent box tax regime ― overview guidance note for details.

Such an election is given effect byallowing a deduction to be made in calculating the profits of the trade for corporation tax purposes. However, it is possible that the result of the calculations performed in arriving at the relevant IP profits is negative. This figure is known as a relevant IP loss. In these circumstances, there are no profits from which the deduction can be made to give effect to the reduced patent box rate of corporation tax.

A company which has not already elected into the patent box regime is unlikely to make such an election for the first time during a loss making period. 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 when it subsequently becomes loss making. The ways in which relevant IP losses may be utilised are set out in more detail below.

The set-off amount

A company which would be entitled to make a deduction under s 357A(2), but for the fact that it generates relevant IP losses for the accounting period is deemed to have a ‘set-off amount’, which is equal to the amount of the relevant IP losses. The way in which the set-off amount is treated varies, depending upon

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