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HMRC internal manual

Corporate Intangibles Research and Development Manual

Patent Box: relevant IP profits: overview

Normally, there are three stages to calculate the profit to which the Patent Box tax rate applies - the ‘relevant IP profit’. These are broken down in the legislation into six steps. (See CIRD220110 for the old regime and CIRD275200 for the new regime which requires the application of an R&D fraction to the streams of income).

Additionally, a seventh step may apply if profits were made previously from inventions awaiting grant of a patent if the patent is awarded in the accounting period - see CIRD220540.

Note that ‘RIPI’ is not an abbreviation for ‘relevant IP income’ (see definition at step 2 CIRD220110 and CIRD220160).

First stage : identify the relevant income relating to qualifying IP rights

The first stage for the old regime is at steps 1 to 3 in CTA10/S357C. This:

  • starts with the ‘total gross income’ of the trade (CIRD220120), which includes revenue receipts; and any profits from the realisation of trade intangibles or patent rights, but excludes any finance income (CIRD220130);
  • works out the proportion of RIPI that forms part of total gross income to the total gross income of the trade; then
  • attributes the same proportion of the profits of the trade (adjusted by excluding finance returns and costs, and R&D additional deductions) to the RIPI.
  • In the old regime, the company can also choose to allocate profits to RIPI using the ‘streaming’ rules set out in Chapter 4 of the legislation and in some circumstances the company has to use this approach. See CIRD230000+.

The first stage for the new regime is in CTA10/s357BF

  • all income is streamed CIRD271500 and in general the IP stream needs to be divided further between substreams corresponding to qualifying Ip rights, products or product families (CIRD271500).
  • expenditure is assigned to those streams on a just and reasonable basis and deducted from that income
  • In the new regime, streaming is a requirement for all.

Second stage

The second stage for both old and new regimes is the removal of a routine return (CIRD220430) on certain costs described at step 4 in the legislation, from the attributed profits to get a figure of ‘qualifying residual profit’(QRP). In the new regime this applies to each substream.

Third stage

The third stage, for both old and new regimes, steps 5 and 6 in S357C and s357BF respectively, removes a marketing assets return (CIRD220490) from QRP, or 25% of the QRP figure in small claims cases (CIRD220470). The remainder is then the ‘relevant IP profits’ which are subject to the reduced rate. In the new regime this applies to each stream.

Additional Stage for the new regime:

  • the relevant profit for the substreams relating to the new regime have the relevant R&D fraction applied. see CIRD274100


The relevant IP substreams are added to obtain a total relevant profit.