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HMRC internal manual

Corporate Intangibles Research and Development Manual

Patent Box: relevant IP profits: elections for small claims treatment: entry criteria

CTA10/S357CL and CTA10/s357BN

Companies with qualifying residual profit which meets the criteria described in this section will be able to elect to use the small claims treatment. The old regime small claims treatment is described at CIRD220480.

The new regime provides three separate elections, described at CIRD220480 (Marketing Assets Return calculation to be replaced by a 25% reduction, the same as in the old regime), CIRD273100 (appropriate percentage of IP derived income to be taken as 75%) and CIRD273200 (allowing a global stream) and an election may be made for any, or all of them as they are not mutually exclusive. The new regime small claims treatment applies only where the company is, or elects to be, a new company and where the company only has one trade.

The small claims elections should be made annually, showing that the criteria still apply, and included as part of each corporation tax computation to which they apply and do not need to be sent separately. The elections should be tagged under the ixbrl online tagging system.


Qualifying Residual Profit (QRP)

The qualifying relevant profit (‘QRP’) is the figure of profit that remains after removal of the routine return. It represents the part of the profits of the trade that relates to exploitation of qualifying IP rights and also to the ability to access other unique IP or intangible assets such as brand or marketing assets. The regime aims to exclude the profits attributable to these marketing assets IP from the Patent Box. In the old scheme this is after steps 1 to 4 of the computation (CIRD220430) and in the new scheme this is the aggregate of the income streams, excluding those not greater than nil, following step 7 (CIRD275200).

It can be seen that unless the relevant IP income is also below the threshold for small claims treatment, when it will be evident, it will be necessary to follow the streaming instructions first in the new regime before determining that the qualifying relevant profit meets the criteria - even if the chosen election is for a global stream. However this means that preparations will be in place to move to streaming in later years should the small claims threshold be exceeded.

In order to elect for small claims treatment a company must meet either condition A or condition B.

Condition A

The QRP of the company does not exceed £1,000,000.

Condition B

  • The QRP of the company does not exceed the relevant maximum; and
  • In the previous four years the company has not calculated its Patent Box profits by following Step 6 in section 357C.(That is, it has not in that period calculated its marketing asset return using arm’s length principles and deducted that figure in the calculation of its relevant IP profits (see CIRD220490) (old regime) ) or  used s357BF without making the relevant small claims election when it qualified to do so (new regime).


  • The relevant maximum is:

3,000,000 / (1+N)



Where N is the number of 51% group companies for which a Patent Box election has effect for the relevant accounting period.

The relevant maximum is also proportionately reduced if the accounting period is less than 12 months long.

The reason for this limit in the ability to use small claims treatment is that without the restriction companies with significant QRPs would be able to claim £1,000,000 of relevant IP profits event though the QRP might derive wholly from their marketing assets.

Where the relevant maximum is exceeded the company cannot elect to use the small claims treatment.


Companies qualifying for Small Claims Treatment – Summary


ignoring 51% group companies elected into the patent box;

  • A company with QRP up to £1m can always elect for small claims treatment.
  • A company with QRP in excess of £3m can in no circumstances elect for small claims treatment.
  • A company with QRP between £1m and £3m can elect for small claims treatment, if:


  • its QRP has never exceeded £3m and it has never chosen to compute and deduct a marketing assets return figure; or additionally and as relevant in the new regime, never applied sub streams or a notional royalty percentage based on transfer pricing principles when it could have elected for Small Claims Treatment under the ‘new’regime  or
  • although its QRP has exceeded £3m, and although in consequence it has been required to compute a marketing asset return figure, it has not in the last 4 years actually taken step 6 (old regime) or step 5 (new regime) for the Marketing asset election, nor, as appropriate, calculated a notional marketing royalty using Transfer Pricing principles, or applied step 2 of s357BF(substreams).


This means that when a company has made a deduction for a marketing return in arriving at its relevant IP profit, it can only subsequently elect for small claims treatment if for 4 subsequent consecutive years it no longer needs to take Step 6 in S357C or step 5 on s357BF (because the MAR is <10% and deemed to be nil) and in the new regime, unless turnover drops to below £1,000,000 it is unlikely to be able to elect to use the small claims treatment for global streaming or notional royalties

. This is designed to prevent companies with fluctuating profits changing their method of computation.