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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Patent Box: streaming: overview

In some instances apportioning the profits of a trade by using a simple ratio of RIPI to total gross income will not give an acceptable estimate of the company’s actual profits from exploitation of its qualifying IP rights.

Why a company may wish to stream

In circumstances where a company has a significant amount of non-IP income that produces relatively little profit and a smaller amount of income that is relevant IP income but produces a much larger level of profit the normal apportionment rules (CIRD220110) will be to the company’s disadvantage.


A company which manufactures and sells a range of established products, none of which incorporate items protected by qualifying IP. The turnover from this activity is £9m but its expenses are also £9m and so its net profits are nil. The company also owns qualifying IP which it developed many years previously and has licensed out to another business which takes care of manufacturing, marketing, distribution and sales. It receives an annual licence fee of £1m and has no costs so its profit is £1m.

If the trade profits of £1m are apportioned by the ratio of RIPI to total gross income the result will be: £1m/£10m x £1m = £100,000.

But clearly in this example the company will want, substantially, all of the profits of £1m to qualify for the Patent Box. It may therefore make a ‘streaming election’.

Streaming election

An election made under S357D(1) is a ‘streaming election’.

A streaming election has effect:

  • for the accounting period for which it is made, and
  • for each subsequent accounting period.

This is subject to S357DB (method of allocation) (CIRD230120).

Where streaming applies the company must divide its trading income into two streams: one consisting of relevant IP income, the other being all other trading income. The company must then allocate its trading expenses between the two streams on a just and reasonable basis.

Why mandatory streaming may apply

In some cases a company will be required to stream - if any of the mandatory streaming conditions in S357DC (CIRD230140) are met in relation to a trade of a company for an accounting period, the company must apply streaming (that is apply S357DA instead of S357C) for the purposes of determining the relevant IP profits of the trade for that accounting period (CIRD230110).


A company manufactures and sells items which rely on qualifying IP rights and also receives licence royalties in respect of non-qualifying IP. The company’s receipts from exploiting qualifying IP rights are £9m but its costs are also £9m so it generates a profit of nil. Its licence income is £1m all of which is profit.

If the trade profits of £1m are apportioned by the ratio of RIPI to total income the result will be: £9m/ £10m x £1m = £9m. So £900,000 of profit from non-qualifying IP will potentially qualify as RP if streaming is not mandated.

Streaming and notional royalties

Where a company computes the majority of its relevant IP income as a notional royalty (CIRD220250) it is likely to be beneficial for it to elect to stream. This is because as the notional royalty relates to the bare patent, the trade costs associated with it are likely to be relatively small (the only exception being R&D expenditure where a reasonable proportion of the expenditure will need to be allocated).