Patent Box : New Regime : Calculation Flowchart
The Patent Box New Regime calculation flowchart is designed to help you work through the steps required. It can be found in the link to Calculation flowchart (Pdf) or Powerpoint format . If you are unable to access the attachment, an accessible version is set out below:
Step Question and Action
- Are you a company? Yes go to 2, no END.
- Do you hold a qualifying IP right or rights by way of ownership or exclusive licence (CIRD210110)? Yes go to 3, no END.
- Were any of those qualifying IP rights acquired or applied for before 1/7/16 (see CIRD240160 if acquired as part of a Transfer of a trade as special rules apply)? Yes go to 4 no go to 9.
- Did you/will you elect into the Patent Box before 2 years after the end of your Accounting Period which straddles 30/6/16? Yes go to 5, no go to 9 Old regime.
- In addition to qualifying IP rights acquired or applied for before 1/7/16 do you have any IP acquired or applied for on or after 1/7/16? Yes go to 9, no go to 6.
- Are any of the qualifying IP rights acquired from a connected company in a country which does not have a Patent Box regime, on or after 2/1/16 (CIRD270200)? Yes go to 9, no go to 7.
- Does the income from 6 above relate to before 31/12/16? Yes go to 8, no go to 9.
- UNLESS THIS CHANGES, STAY IN OLD REGIME UNTIL 1/7/2021. FOLLOW calculation at CIRD220110 and start to track and trace R&D expenditure from 1/7/16 on IP assets still likely to be qualifying on 1/7/2021 per CIRD272000 END.
New Regime (Track and trace R&D expenditure and acquisition costs for these qualifying IP rights per CIRD272000.) 9. Does the company meet the criteria for Small Claims Treatment (CIRD220470) and want to elect into any or all of the Small Claims Treatment elections (CIRD273200, CIRD273100 or CIRD220480)? Yes go to 10, no go to 12. 10. Elect into the new regime immediately and forgo any grandfathering provision. Make election for Global streaming if you want to use a Global stream. (CIRD273200) Go to 11
- Split income and expenditure into streams of NON RIPI and global stream. Start tracking and tracing R&D expenditure and acquisition costs for this IP per CIRD272000. Go to 12.
- Is income from any of the qualifying IP rights ‘IP derived income’? (CIRD220250) This might be from process patents, leasing, or service income for example. Yes go to 13, no go to 16.
- Follow the rules at CIRD220251 to ascertain IP derived income relating to the Qualifying IP rights in 12. Does the company meet the criteria for Small Claims Treatment (CIRD220470)? Yes go to 14, no go to 16.
- Make a small claims election for notional royalties if you want to take the appropriate percentage of IP derived income to be 75% (CIRD273100) Yes go to 16, no go to 15.
- Complete the notional royalty calculation by calculating an appropriate percentage of deemed IP income using transfer pricing principles. Go to 16.
- Can you identify income relating to every qualifying IP right and track its related R&D expenditure? The criteria is that you should use the most detailed level that you are able to.Yes go to 17, no go to 18.
- Streams (All sub stream(s) at IP level). Split income and expenditure into streams of NON RIPI, old RIPI (if applicable – there may be none or an election may have been made to treat all as new) and new RIPI, the latter being divided into sub stream(s).CIRD271500 provides guidance. Track and trace R&D expenditure and acquisition costs at this level per CIRD272000. Go to 21.
- You are having to stream with at least one stream at product/process level or product/process family level. The most detailed level possible should be chosen. Do the sub streams with these products or processes have a combination of old and new qualifying IP rights within them? Yes go to 19, no go to 20.
- Use the Core Value or numeric methods of calculation at CIRD271600 to ascertain whether the sub streams with products/processes or product/process families can be regarded as being grandfathered or whether they are in the new regime. Track and trace R&D expenditure and acquisition costs for all qualifying IP rights per CIRD272000. Go to 20.
- (At least one stream is at product/process or product/process family level). Split income and expenditure into streams of Non RIPI, old RIPI (if applicable) and sub streams at an appropriate level for qualifying IP rights in the new regime. The Qualifying IP rights grouped together need to be capable of being used for the same or substantially the same, purpose. Go to 21.
Stream adjustments 21. Are there any new qualifying IP rights within the sub streams for which income related acquisition payments are required? Yes go to 22, no go to 23.
- Remove the income related acquisition payments from expenditure in that sub stream. Go to 23.
- Deduct the expenditure debits from the income in each stream. Calculate the routine return deduction for each stream and sub stream with relevant IP income and deduct it from those streams or sub streams. (CIRD220440). Does the company meet the criteria for Small Claims Treatment (CIRD220470)? Yes go to 24. no go to 26.
- Do you want to make a small claims election for a Marketing Asset Return deduction of 25% for any stream or sub stream (CIRD220480)? Yes go to 25, no go to 26.
- Make the small claims election and apply the Marketing Asset Return of 25% to the relevant streams.Go to 26.
- Apply a relevant Marketing Asset Return deduction to all streams and sub streams apart from the stream with no relevant IP income. Go to 27.
The R&D fraction Use the tracking and tracing records to identify direct R&D expenditure (D), unconnected party subcontracted R&D expenditure (S1), connected party subcontracted expenditure (S2) and acquisition expenditure (A) for each sub stream. Calculate fractions using the formula (D+S1)x1.3/(D+S1+A+S2), capped at 1, for each sub stream. Does the result provide an incongruous result? Yes go to 28, no go to 29.
Consider whether it is appropriate to make an election to use an alternative Value Fraction instead of the R&D fraction per CIRD275500 .Go to 29.
Multiply the relevant fraction by each new sub stream of the calculation to create a figure for each sub stream.Go to 30.
The calculation Add the sub stream figures from 29 together with the figure from the stream with old RIPI to create a Patent Box profit or loss.If loss go to 31, if profit go to 32.
- The Patent Box loss should be ring fenced and any related company’s Patent Box profit or any future Patent Box profit should be reduced by this amount END.
- Multiply the Patent Box deduction by (MR-IPR)/MR where MR = main rate of CT and IPR = special rate of Patent Box CT (10%) and if before 2017, reduce using the commencement (phasing in) provision at CIRD260170 END.