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In order to meet proposals developed by the Organisation for Economic Co-operation and Development (OECD) to harmonise preferential tax regimes operating in G20 states, HM Revenue and Customs have, with HM Treasury, recently opened a consultation on proposed changes to the UK Patent Box scheme.

The consultation is open from 22 October 2015 to 4 December 2015 and can be viewed here. Changes to the current Patent Box rules will then be proposed in the 2016 Finance Bill. Any amendments will be effective from 1 July 2016.

Summary of proposed changes

The primary proposal is that for a business to be entitled to a preferential tax scheme such as the Patent Box, they must have undertaken the substantial activities that generated the income which is to benefit from the regime. Businesses which have acquired IP will not benefit to the same extent.

The “Nexus Approach”

The proposed new Patent Box scheme takes account of a company’s R&D expenditure to determine the proportion of the company’s IP profit which may be included in the Patent Box scheme. This is referred to as the “nexus fraction”.

The “qualifying expenditure”, or numerator, of the fraction will be the company’s own R&D expenditure plus any subcontracted R&D expenditure to an unrelated party. The denominator of the fraction will be the qualifying expenditure plus R&D subcontracted to a related party plus acquisition costs.


  • QE = Qualifying expenditure
  • RDS = R&D subcontracted to a related party
  • AC = Acquisition costs

HM Revenue & Customs have drawn out this helpful chart which outlines the proposed rules.


The proposed change shifts the benefit of Patent Box further in favour of companies who develop their own IP.

Companies who have developed their own IP are likely to have a nexus fraction close to 1 and so will not be greatly affected by the changes. Companies that have acquired their IP, however, will have a nexus fraction of less than 1 and so the proportion of their IP profit which may benefit from the Patent Box scheme will be reduced.

It is likely that the burden of keeping accurate records will increase for companies wishing to take part in the revised scheme because they will need to accurately track IP expenditure to the patent or product level.

How can AA Thornton help?

If you have any queries regarding this latest update or any other patent related queries, please do not hesitate to contact us. Our UK, European and German Chartered patent attorneys are qualified to advise on all aspects of UK, European and German patent law, and provide the following services (click on the links below for more details):

Category: News | Author: Ian Gill | Published: | Read more