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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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Patent Box: relevant IP profits: steps for calculating relevant IP profits of a trade

CTA10/S357C

S357C lists the steps in the calculation of the relevant IP profit. These will apply unless the company elects or is mandated into the streaming rules (see CIRD230000+).

Step 1

Calculate the total gross income of the trade for the accounting period (CIRD220120).

Total gross income includes revenue receipts but excludes finance income (CIRD220130).

Step 2

Calculate the percentage (X%) given by the formula -

  RIPI   x   100
           
  TI        

Where

  • RIPI is so much of the total gross income of the trade for the accounting period as is relevant IP income (CIRD220150), and
  • TI is the total gross income of the trade for the accounting period.

Step 3

Calculate X% of the profits of the trade for the accounting period.

If there are no such profits, calculate the X% of the losses (expressed as a negative figure) for the accounting period.

In calculating the profits of the trade for the purposes of this step, make any adjustments required in CIRD220400.

Step 4

Deduct from the amount given by Step 3, the routine return figure (10% of certain trading expenses) (CIRD220430). This gives rise to the ‘qualifying residual profit’ (QRP). If the QRP is nil or a loss, go to Step 7.

Step 5

If the company has claimed the small claims treatment in relation to its marketing asset return, calculate the small claims amount in relation to the trade and ignore Step 6 (CIRD220470). Otherwise go to Step 6.

Step 6

Deduct from the QRP, the marketing assets return figure (CIRD220490).

Step 7

If the company has made an election for profits arising before the grant of a right, add to the amount given by Step 5 or 6 (or, if the amount of QRP was not greater than nil, Step 4) any amount so determined (CIRD220540).

This can give rise to a relevant IP profit or a relevant IP loss.