When do the new Patent Box calculation rules apply to existing Patent Box companies under section 357BO?

The new Patent Box calculation rules apply to companies that are not new entrants where the accounting period begins before 1 July 2021 and some of their relevant IP income relates to a new qualifying IP right granted or acquired after the transitional cut-off date. The calculation follows section 357BF as modified by section 357BQ.

How is the R&D fraction calculated for existing Patent Box companies with new qualifying IP rights?

When calculating the R&D fraction for income streams linked to new qualifying IP rights, an existing Patent Box company is treated as a new entrant. This means qualifying R&D expenditure must be tracked from 1 July 2013 onwards, or from an earlier date if the company makes an appropriate election, ensuring consistency with the reformed regime.

Why does section 357BO restrict global streaming elections?

Where section 357BO applies, the company holds a mixture of old and new qualifying IP rights subject to different calculation rules. A global streaming election, which treats all IP income as a single stream, would not produce an accurate result. The restriction ensures profits from new qualifying IP rights are calculated separately and correctly.

Can you give a practical example of how section 357BO applies?

A company in the Patent Box since 2014 earning income from an old patent and a new qualifying patent granted in 2017 must use the reformed calculation method for the new patent's income. It is treated as a new entrant for R&D fraction purposes and cannot make a global streaming election, requiring separate profit calculations for each patent.

Corporation Tax Act 2010 section 357BO

Relevant IP profits

Section 357BO sets out the conditions under which the new Patent Box rules apply to existing Patent Box companies that hold new qualifying IP rights, and the restrictions that follow.

The new Patent Box profit calculation rules apply to companies that are not new entrants, where the accounting period begins before 1 July 2021 and some of their relevant IP income relates to a new qualifying IP right
When calculating the R&D fraction for income streams linked to new qualifying IP rights, even an existing Patent Box company is treated as though it were a new entrant, meaning R&D expenditure is tracked from 1 July 2013 or an earlier elected date
Where these rules apply to determine a company's relevant IP profits for an accounting period, the company is not permitted to make a global streaming election for that same period
The profit calculation follows the standard method set out in section 357BF but with specific modifications prescribed by section 357BQ

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