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HMRC internal manual

Capital Allowances Manual

Patents: Sums received from sale of patent rights: Payments received for Crown user

You may receive details from a Government Department of a lump sum payment they have made to a taxpayer for user of a patent. This is how you should treat lump sum awards for Crown user of patents.

Payments for past user

Treat the payment as an aggregated royalty. The paying department will normally deduct tax under ICTA88/S349. If they do not you should make an assessment to collect the tax due. The taxpayer can claim to have the spread back provisions CA75400 applied.

Payments for future user

A payment for future user of a patent may be for limited or unlimited user. There is guidance about the meaning of limited and unlimited user of a patent at IM3922.

If the payment is for limited user it should be dealt with like a payment for past user except that the spread back provisions are not available.

If the payment is for unlimited user and is a capital payment, the payment is taxable under ICTA88/S524 CA75200.

Payment that covers both past user and future unlimited user

In these cases the Department concerned will normally fix the proportion of the payment applicable to past user and deduct tax from it. You should follow the guidance above about payments for past user when you deal with that part. You should follow the guidance above about payments for future user when you deal with the balance.