Patent box ― relevant IP losses

Produced by Tolley

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

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 effective rate of corporation tax (currently an effective rate of 10%).

Such an election is given effect by allowing 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. See the following guidance notes for details of how relevant IP profits and losses are calculated (the correct method will depend upon when the first patent box election is made):

  1. Calculating relevant IP profits ― from 1 July 2016

  2. Calculating relevant IP profits ― existing claimants with no new IP rights

  3. Calculating relevant IP profits ― existing claimants with new IP rights

CTA 2010, ss 357A(2), 357C(3), 357BF(4)

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 tradi

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