MHA | Unlocking the potential of Patent Box

Unlocking the potential of Patent Box

Scott London-Hill · Posted on: January 30th 2024 · read

Scientists working in the laboratory

Addressing challenges and seizing opportunities in the Pharma Industry

The Patent Box regime is designed to encourage companies to not only attain, but also commercialise their intellectual property in the UK. It enables companies to apply a lower rate of Corporation Tax (10%) to profits earned from patented inventions.

The Patent Box scheme can be engaged independently of the R&D Tax Relief Schemes, however claimants often engage both to provide benefits throughout the lifecycle of a product.

In the tax year 2021 - 2022, an estimated 1,500 companies were expecting to make Patent Box claims in the UK with a value of over £1.3 billion, underscoring the significance of the government initiative. However, the numbers reveal a nuanced landscape within the pharmaceutical sector. With a closer look at the statistics, it becomes evident that there are hurdles impeding smaller companies from fully capitalising on the benefits.

The landscape

Out of the 1,500 companies making claims, 24% were large companies, however this accounts for a substantial 94% of the total claim value. This raises questions about the accessibility of the scheme for smaller players in the industry.

Sector breakdown

The statistics indicate that almost half of the claimants belonged to the manufacturing sector (which may also include some scientific entities). Surprisingly, only 16% represented the pharmaceutical industry. This prompts reflection on whether pharmaceutical companies view the UK as an attractive hub for setting up, investing, and initiating projects.

Regional disparities

Breaking down the Government figures for 2021-22 shows, while London emerged as a dominant player, contributing 44% of the total claim value, other regions displayed varying degrees of participation. The East Midlands, for instance, claimed a mere 1%, raising concerns about regional imbalances in the adoption of the Patent Box scheme – as well as the wider UK economy.

Challenges for small companies

The statistics shed light on the challenges faced by smaller companies in the pharmaceutical sector. With only 16% representation, it is evident that these companies require additional support. The question arises: How can the Government enhance the scheme to better cater for the needs of SMEs?

Laboratory concept

Proposed solutions

Whilst a reduction on the existing 10% rate for Patent Box profits would be welcomed, realistically this is already an enticing discount and holds significant advantages for companies, especially with the main rate for Corporation Tax having increased to 25%. However, there is potential for the Government to further enhance support for SME’s by implementing:

  1. Differential rates for SMEs As they only represent 6% of the scheme value, consideration should be given to introducing a different rate for small and medium-sized enterprises (SMEs). While the existing 10% rate is commendable, a tailored approach for SMEs could act as a stronger incentive for them to choose the UK as their base.
  2. Threshold Benefits One of the main issues of the scheme is that a loss for Patent Box purposes not only means you don’t receive any benefit, but also reduces future Patent Box profits – and therefore tax saving. This may be one of the reasons for the lack of claims. It may be beneficial to ‘waive’ the losses which will encourage companies to enter into the scheme without fear of handicapping future claims. In addition, instead of starting the benefit calculation from zero, a small initial benefit, such as £10,000, could be introduced for SMEs. This may provide an immediate advantage to holding a patent, and assist the payment of expensive legal or licencing costs in relation to it. These costs are some of the main barriers to companies looking to protect their IP.
  3. Additional Deduction for Legal costs and Licence Fees An alternative to changing thresholds (as stated above) could be an additional deduction for legal costs or licence fees relating to Patents (similar to how the SME scheme for qualifying R&D expenditure works). This would also mean that companies would receive assistance in the early stages of development before a Patent is granted and even before the product is commercialised in any way. Companies would be more likely to protect their IP, commercialise their invention, and keep profits in the UK going forward.
  4. Education and awareness Given that a portion of companies may not be aware of or fully understand the Patent Box, efforts should be made to increase knowledge and awareness. Initiatives, similar to those employed for Research and Development (R&D) tax credits, could be implemented.


As the UK's corporate tax rate is set to rise from April 2023, the potential benefits of the Patent Box scheme become even more pronounced. However, to truly unlock its potential, a more tailored approach is needed, with a focus on supporting smaller players in the pharmaceutical industry. By implementing these proposed solutions, the Government can foster a more inclusive and dynamic environment for innovation and growth.

Source: Patent Box relief statistics: September 2023 - GOV.UK