Corporation Tax Act 2010 section 357BF

Relevant IP profits

Section 357BF sets out the step-by-step method for calculating the relevant intellectual property (IP) profits of a trade for an accounting period, which determines the amount eligible for the reduced Patent Box rate of corporation tax.

• Trade income (excluding finance income) is split into a relevant IP income stream and a standard income stream, with the IP stream further divided into sub-streams for individual IP rights, IP products, or IP processes.
• Allowable debits, a routine return figure, and a marketing assets return figure are deducted from each IP sub-stream to isolate the profit attributable to qualifying IP activity.
• Each sub-stream balance is then multiplied by an R&D fraction that reflects the proportion of qualifying research and development expenditure the company has itself undertaken or subcontracted to unconnected parties.
• The resulting sub-stream amounts are added together (plus any elected pre-grant profits) to give the relevant IP profits for the period; a negative result is treated as a relevant IP loss.

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