Income Tax Act 2007 section 903

Deduction from patent royalties

Section 903 requires that income tax at the basic rate be deducted at source from patent royalty payments arising in the United Kingdom, and sets out how the deducted tax is collected depending on who makes the payment.

• Any royalty or other sum paid for the use of a patent that arises in the UK and is chargeable to income tax or corporation tax must have income tax deducted at the basic rate before payment is made
• Payments that already qualify as "qualifying annual payments" or that fall under the separate rules for annual payments made for dividends or non-taxable consideration are excluded from this requirement
• Where the payer is an individual, or is a non-individual with modified net income, the deducted tax is collected through the payer's self-assessment return; where the payer is a non-individual with no modified net income, the tax is collected under separate procedures depending on whether the payer is a UK-resident company or not
• Special provisions in relation to double taxation arrangements and EU companies may allow royalties to be paid at a reduced treaty rate or gross, rather than subject to the standard deduction