Corporation Tax Act 2010 section 357C

Relevant IP profits

Section 357C sets out the step-by-step method for calculating a company's relevant intellectual property (IP) profits from a trade for an accounting period, which determines the amount of the Patent Box deduction that reduces the effective rate of corporation tax on qualifying IP income.

• This section applies only where the accounting period began before 1 July 2021, the company is not a new entrant to the Patent Box regime, and none of the relevant IP income is attributable to a new qualifying IP right.
• The calculation involves a seven-step process: first determining what proportion of total gross income is relevant IP income, then applying that percentage to the trade's profits, and finally stripping out routine returns and marketing asset returns to isolate the profit attributable to qualifying IP rights.
• If, after deducting the routine return, the qualifying residual profit is nil or negative, the company skips the marketing assets deduction steps; a positive final figure represents relevant IP profits, while a negative figure represents relevant IP losses carried forward under Chapter 5.
• Companies may elect for small claims treatment (which simplifies the calculation) or may include additional amounts where profits arose before a patent was formally granted, provided the appropriate elections have been made.