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HMRC internal manual

Capital Allowances Manual

Patents: Sums received from sale of patent rights: Spreading royalties


If a person receives a royalty or other sum for the user of a patent that lasts for 2 years or more spread back relief may be claimed. Spread back relief means that the tax due on the amount received is calculated as if the payment had been received in instalments over the number of complete years it covers with the last payment being received on the date that the royalty was paid. The time limit for making the claim is within 6 years ofthe end of the year of assessment in which the payment was received.

Royalties are normally paid under deduction of tax under ICTA88/S349. There is guidance at RE2010 about giving spread back relief for patent royalties received under deduction of tax.

Example On 31 December 2007 Thomas receives a payment of £3,600 for the user of a patent for the period 1 January 2005 to 31 December 2007. If he makes a claim for spread back relief the tax due is calculated as if he had received a payment of £1,200 on each of 31 December 2005, 31 December 2006 and 31 December 2007. The payment was received on 31 December 2007, which is in 1997/98. If Thomas wants to claim spread back relief he must claim it by 5 April 2014.

Spread back relief is not available where a non-resident sells UK patent rights for a capital sum and the payment is required to be made under deduction of tax.