Patent Box statistics reveal a mid-market opportunity

In summary

• HMRC estimates that 1,735 companies elected into Patent Box in 2024/25, up from 1,695 in 2023/24

• The total value of Patent Box relief is projected to rise by 23%, from £1.86 billion to £2.28 billion year on year in 2023/24 to £2.28 billion in 2024/25

• Large companies represent just 28% of businesses that elected into Patent Box but receive 95% of the relief

• London and East England account for 21% of companies electing into Patent Box but for 64% of the relief

• Manufacturing remains a major beneficiary of Patent Box, accounting for 40% of relief in the latest figures

HMRC’s latest Patent Box statistics point to a regime becoming considerably more valuable, without a comparable rise in the number of businesses using it.

The estimated 1,735 companies that elected into Patent Box in 2024/25 represent an increase of only around 2% on the previous year. Yet the amount of relief is forecast to jump by approximately 23% to £2.28 billion. HMRC attributes that increase to the continuing effect of the main corporation tax rate rising from 19% to 25%, alongside higher eligible profits.

The widening gap deserves attention. With qualifying Patent Box profits effectively taxed at 10%, compared with the 25% main corporation tax rate, the economics of the regime have become far more compelling. But its benefits remain heavily concentrated among the UK’s largest businesses.

There’s a telling split in the figures wherein large companies account for 28% of businesses that elected into Patent Box yet receive 95% of the relief. That leaves the remaining 72% of companies sharing just 5%.

Some concentration is inevitable. Bigger businesses tend to generate greater profits and often have larger patent portfolios, more established tax functions and the resources to manage Patent Box calculations.

But it doesn’t follow that Patent Box is principally a large-company incentive.

For profitable mid-market businesses investing in research and development (R&D), particularly those developing innovative products, processes or technology, there may be a sizeable opportunity sitting unnoticed between their R&D activity and their eventual profits.

This is especially relevant for manufacturers. Manufacturing accounted for 40% of all Patent Box relief in 2023/24, the latest year for which HMRC has complete figures.

In our experience, the issue is often not a lack of innovation. It’s that businesses haven’t looked closely enough at whether their innovation can be patented, or they’ve decided that obtaining a patent and navigating Patent Box sounds too difficult.

That can mean the conversation stops too soon.

Patent Box was introduced in 2013 and its benefit was phased in, reaching the full 10% rate from 2017/18. Back then, the main corporation tax rate was 19% and had been on a downward trajectory. The calculation looks starkly different today.

The main rate rose to 25% from 1 April 2023 while the Patent Box rate remained at 10%. HMRC says that rate change is one of the main reasons the overall value of relief has increased so substantially.

So, for businesses that dismissed Patent Box several years ago because the potential saving didn’t justify the work involved, it may be time for another look.

The comparison is also useful when businesses think about innovation incentives more broadly. R&D relief supports businesses as they spend money developing new products and technology. Patent Box can then reward successful commercialisation by reducing the tax payable on qualifying profits generated from patented innovation.

Seen together, the two can form different parts of the same investment cycle rather than unrelated tax exercises.

Admittedly, Patent Box can involve detailed work.

A company needs qualifying intellectual property (IP) and must meet the relevant development conditions. Its calculation then requires income and expenditure to be appropriately streamed between patented and non-patented activity, with further adjustments made before the qualifying Patent Box profit is established.

But the work can often be front-loaded. Once a robust methodology has been established, subsequent calculations will often be much more manageable unless the business changes significantly.

That matters because patents can produce qualifying profits over several years. The right question, therefore, isn’t necessarily whether the first Patent Box claim warrants the effort in isolation. Businesses need to consider the potential cumulative value over the commercial life of the IP, which can be 20 years for a patent.

And businesses shouldn’t assume that an absence of patents today means Patent Box is irrelevant.

For innovative companies, an IP review can identify technology they may not previously have considered patentable. From there, the commercial case for seeking patent protection can include not only protecting innovation but also accessing the Patent Box regime.

S&W’s IP capability was strengthened by its acquisition of ClearViewIP, adding specialist IP strategy, operational and transactional expertise alongside the Group’s existing tax capabilities. That means the patent and tax questions can be considered together rather than in isolation.

HMRC’s geographic data also shows a marked imbalance.

London and East England together account for 21% of companies elected into Patent Box for 2024/25 but are projected to receive 64% of total relief. At the other end of the scale, the North East accounts for just 3% of participating companies.

Those figures need some care. HMRC allocates businesses to regions using the addresses supplied for tax purposes, meaning a company may be recorded at its headquarters even when its R&D, manufacturing or other activity happens elsewhere. HMRC therefore cautions that the statistics don’t necessarily show where the underlying economic activity takes place.

Still, the concentration is hard to ignore. If the UK wants tax incentives to encourage businesses to develop, manufacture and commercialise innovation here, the question shouldn’t simply be how much relief is being awarded. It should also be whether businesses across the country recognise the opportunities available to them.

The regional picture, coupled with the dominance of a relatively small number of large claimants, suggests there is more work to do.

There is another important qualification to the 2024/25 numbers: They’re projections.

HMRC says the figures will be updated in its next annual release, planned for autumn 2027. Companies generally have two years after the end of the relevant accounting period to elect into Patent Box, which inevitably creates a lag before the complete picture emerges.

HMRC’s projection methodology reflects this. Its analysis indicates that, on average, 88% of Patent Box deductions have been made by the end of July in the second year following the accounting period, with the remaining claims feeding through later.

Our experience in the market gives us reason to think the final numbers could prove stronger than the current projection suggests. We’re seeing greater awareness of Patent Box and more businesses looking at their IP strategically, rather than treating patents, grants, R&D and tax incentives as separate conversations.

Whether that translates into a material increase in claimants remains to be seen. But a projected 2% rise in participation doesn’t suggest every innovative mid-market business that could benefit already is doing so.

The opportunity isn’t limited to companies outside Patent Box.

Businesses already making claims should periodically review whether their methodology continues to capture the right qualifying profits and whether more of their IP portfolio could fall within the regime.

That can mean looking again at which products are covered, how income and costs are attributed and whether additional patentable innovation has emerged since the original methodology was established.

It’s also worth considering Patent Box before a major corporate restructuring or changes to where IP is held. The regime contains conditions around ownership, development and acquired IP, so decisions made without considering Patent Box can affect the relief subsequently available.

The earlier those questions are raised, the more options a business is likely to have.