The UK’s Patent Box Supports Innovation When Business Acts Early

The UK’s generous Patent Box relief can strengthen cash flow and support continued innovation, but only if businesses are aware of it and act early. Understanding eligibility and exploring the relief before commercialization ramps up can prevent missed opportunities and ensure companies secure the value their intellectual property deserves.

In her recent budget speech, UK Chancellor Rachel Reeves reaffirmed the government’s commitment to “championing innovation, not stifling it.” Opinions may differ on whether her measures advance that aim, but it was reassuring to see core components of innovation support emerge unscathed, particularly the Patent Box.

The Patent Box offers a reduced 10% corporation tax rate on profits linked to patented technology, helping firms to strengthen cash flow at a time when costs continue to rise. For claimant companies, the relief provides meaningful support for reinvestment, growth, and continued innovation.

Given its value, it seems surprising that HMRC’s latest Patent Box statistics, published in September, indicate that only around 1,600 companies claimed the relief in the tax year 2023-24. For context, 18,953 patent applications were filed in 2024.

Potential reasons include the amount of time it can take for a patent to be granted and for businesses to then consider their eligibility for relief. More fundamentally, persistent misconceptions, unclear guidance on eligibility, and a lack of awareness are preventing companies from optimizing the benefit at the point that they commercialize their hard-won intellectual property.

Misconceptions Hindering Business

Awareness of Patent Box has grown in recent years, reflected in the rising value of claims over the past two years, but genuine understanding of the regime still trails behind. Companies may still misjudge when they can claim and what income qualifies, which means that many miss out on a relief that could otherwise help fund development, recruitment, and long-term investment.

Timing remains one of the biggest stumbling blocks. A large proportion of businesses believe they need to wait until a patent is granted before engaging with Patent Box, when claims can be backdated for up to six years. Exploring eligibility as early as possible can help to secure valuable relief.

Three areas favor potential claimants: scope, geography, and group or holding structures.

Scope refers to the sectors in which the Patent Box can apply and isn’t restricted to a handful of scientific or engineering sectors. Instead, software, autonomous systems, medical technologies, and a wide range of digital tools can all qualify once protected by a UK, EU, or EEA patent.

Businesses may also be missing out if they believe the scheme to be narrower than it is in relation to geography and cross-border trading. Companies often think overseas income is excluded, but if the company (or group) has undertaken the qualifying development of the patent and the income generated is through the UK financial statements, they should consider applying for relief.

In practice, the relief can support a broad range of cross-border commercial activity.

Group structures are also a frequent source of misconceptions. Patents are commonly held in a parent company for asset protection purposes while trading takes place elsewhere in the group. Many assume this prevents the trading company from benefiting; however, the relief can apply if the trading entity is responsible for commercializing the patented innovation. This makes Patent Box more accessible for complex groups, meaning the relief can provide greater support for international commercial activity.

Given the benefits, especially for firms looking to scale or sustain longer-term R&D, it’s no surprise that the UK isn’t alone in offering an incentive for profits linked to IP. Many countries operate similar systems, and several provide more accessible routes for businesses to benefit, such as Belgium, Malta and the Netherlands. Looking at these international approaches helps highlight how and where the UK could further strengthen its own system.

Most European systems follow the Organization for Economic Cooperation and Development’s modified nexus principles, and the UK sits within this framework in supporting IP-linked profits. Belgium, the Netherlands, and Malta apply differing structures and, in some cases, offer lower effective tax rates.

Belgium applies an effective rate of around 3.7% on qualifying income. The Netherlands applies around 9%, while Malta goes even further, offering an effective rate of about 1.75% within a wider 35% corporate tax system.

Although some countries offer lower effective tax rates, the UK’s Patent Box regime remains competitive because it combines a relatively low 10% rate with generous qualifying criteria.

For UK companies, the takeaway is clear. The Patent Box offers meaningful support. The UK doesn’t need to overhaul its system to remain competitive. But there is value in observing how other jurisdictions continue to support growing businesses through innovation-focused incentives.

Early Action Matters

For those who are aware of the potential gains from Patent Box, the next most common issue is leaving applications too late. Acting early is essential.

Businesses should assess eligibility as soon as they begin planning IP protection or filing patent applications, and treat R&D tax credits and Patent Box as separate tools in the innovation toolkit. They can both be used by businesses to fund innovation, but at different stages of the development life cycle.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Angela Banerjee is an associate director with ForrestBrown, advising on innovation incentives and leading the delivery of Patent Box relief claims.

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