Corporation Tax Act 2010 section 357A

Election for special treatment of profits from patents etc.

Section 357A allows qualifying companies to elect that their relevant intellectual property (IP) profits from a trade are taxed at a reduced rate of corporation tax, achieved through a deduction from trading profits rather than a direct rate reduction.

• A qualifying company may elect for its relevant IP profits to be effectively taxed at a special IP rate of 10%, rather than the main rate of corporation tax, by means of a deduction from trading profits.
• The deduction is calculated using the formula: RP × (AR − IPR) / AR, where RP is the relevant IP profits, AR is the applicable corporation tax rate (main rate or standard small profits rate), and IPR is the 10% special IP rate.
• For accounting periods beginning on or after 1 July 2021, or where the company is a "new entrant", the relevant IP profits or losses are determined under Chapter 2A; for earlier periods where the company is not a new entrant, Chapters 2B, 3 and 4 apply instead.
• A company is a "new entrant" if its first (or most recent) elected accounting period began on or after 1 July 2016, or if it elects to be treated as a new entrant.