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HMRC internal manual

Capital Allowances Manual

HM Revenue & Customs
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Patents: Expenses: Devising a patented invention

ICTA88/S526 (2), ICTA88/S528 (2), & ITTOIA/S587 - S590

A person who devises an invention may incur expenses in doing so. If the expenses are not allowable under any other provision of the Taxes Acts and are incurred by the individual in devising, whether alone or in partnership, an invention for which a patentis granted they qualify for an allowance. The allowance is made for the year of assessment in which the expenses are incurred. If no patent is granted there is no allowance due.

Where the patent rights were, or were to be, used for the purposes of the trade the allowance is made to the trader as a deduction in charging the profits of the trade. In any other case the allowance is deducted from or set off against income from patents. If the allowance is more than the income from patents the excess is carried forward and deducted from patent income in future years.

An inventor may prosecute a claim before the Royal Commission on Awards to Inventors in respect of Crown user of a patent. If that happens, this is how you should give relief for reasonable expenses incurred in prosecuting the claim.

Where the inventor is a trader and any award granted will be treated as trading income treat the expense of the claim before the Royal Commission as a trading expense. This applies where the inventor is using the patent rights for the purposes of his or her trade and where the inventor is carrying on a trade of dealing in patents. A person who creates inventions that are patented or acquires patents and then exploits those patents by sale or licence carries on a trade of dealing in patents.

If there is a lump sum award, which is a capital sum taxable under ICTA88/S524 or ITTOIA/S587 - S590 CA75210, you should allow the expenses as a deduction in calculating the net proceeds of sale.

If an award is made to a non-trader for past or limited future user of a patent and tax is deductible under ICTA88/S349 treat the expenses as an expense incurred in the maintenance of the patent and allow relief for them. If the award in respect of which the expenses are incurred is not taxable no relief is due for them.