Streaming calculation for Patent Box


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Streaming calculation for Patent Box


The Streaming Calculation is used for new entrants in to the Patent Box regime for accounting periods that commenced after 1 July 2016.

It also applies in some other cases and, from 1 July 2021, will apply to all companies that have elected in to the Patent Box.


Streaming v Standard Calculation

The first point to make is that there are more similarities than differences when comparing the Standard Calculation and Streaming Calculations.

The concepts are the same. However, the Streaming Calculation incorporates certain amendments in order to make it compliant with BEPS.

As a result, under the post 2016 rules, we need to strip out each individual IP Income source which are usually referred to as ‘streams’. The expenses must then be allocated to those income streams on a just and reasonable basis.

The other major change is the requirement to apply something called the R&D or nexus fraction.


Streaming – calculating RIPP – first four steps

Firstly, we divide the Company’s trading income in to two parts or ‘streams’:

  • Relevant IP income (RIPI); and
  • Standard income stream

We then further divide the RIPI into sub-streams – this is generally on a right by IP right basis.

Calculate and allocate the expenses relating to the standard income stream and each of the various sub-streams. This is done on a just and reasonable basis.

We then deduct these expenses from each sub-stream:

  • The amount determined at Step 3; and
  • The routine return for each sub-stream

The result is the Qualifying Residual Profit or QRP


Streaming – calculating RIPP – second four steps

We then:

  • deduct the marketing asset return for each sub-stream;
  • Apply the R&D fraction to each sub-stream;
  • Add the sub-stream amounts together;
  • (Where election made for profits before grant) add the profits relating to the periods


Streaming – Step 2 – Split the company’s trading income in to two parts / streams

Divide the RIPI into subs-streams according to whether the income is attributable to a particular:

  • IP right (‘individual IP right sub-stream’)
  • Type of IP item (‘product sub-stream’)
  • Kind of IP process (‘process sub-stream’)

Where possible one should use the individual IP right sub-stream. One should only use the others where it is not reasonably practicable to split on a right by right basis.

It is possible to make a ‘global streaming election’ where meet qualification of a small claim. This effectively omits Step 2.


Step 3 – allocate the expenses relating to the standard income stream and various sub-streams

We then bring in expenses and allocate them to:

  • the various sub-streams
  • the standard income stream

These should be allocated on a just and reasonable basis.


Step 4 – deduct the expenses and routine return from each sub-stream

We then deduct the expenses allocated in Step 3 and the ‘routine return’ from the sub-streams.

The Routine return seeks to remove profits which a business would have made in the absence of the intellectual property.

The routine return is 10% x specific deductions:

  • Capital allowances
  • Cost of premises
  • Personnel costs
  • Plant and machinery costs
  • Professional services

This leaves us with the Qualifying Residual Profit for each sub-stream.

If the QRP is nil or a negative then we don’t go any further.

If QRP is positive then we move on to Step 5


Step 5 & 6 – deduct the marketing asset return for each sub-stream

Again, this is the excess of the Notional Marketing Royalty over Actual Marketing Royalty.

This should be done on a sub-stream by sub-stream basis.

We use transfer pricing principles to determine the amount of the NMR.

If the excess is less than 10% of the sub-stream QRP then no need to adjust.

As for the standard calculation, a small claim can be made to ease administration but usually restricts relief.


R&D fraction


We must apply to each sub-stream

The fraction is capped at 1 (ie RIPI is not increased by the result)

No requirement to have made an R&D claim

Expenditure etc relates to the relevant period – as such must review the fraction at least annually.


The R&D fraction

R&D fraction is:

(D + S1) x 1.3

D+ S1 + S2 + S3               =          X (capped at 1)



D = company’s expenditure on relevant R&D undertaken in house

S1 = the Company’s qualifying expenditure on relevant R&D subcontracted to unconnected persons

S2 = the Company’s qualifying expenditure on relevant R&D subcontracted to connected person

A = Company’s expenditure on acquisition of relevant IP rights

Relevant R&D – broadly must relate to the qualifying IP


Relevant period

It is the expenditure for relevant period is included in the R&D fraction.

The relevant period is:

CaseRelevant period starts
New entrant and AP begins before 1 July 20211 July 2013
All other cases1 July 2016


The relevant period ends on last day of accounting period.

As such, the test is cumulative. In other words, the data is updated each year to take account of the latest data / AP.


Streaming – Step 8 – pre-grant income

Where a company makes patent related profits before the grant of the patent then it can elect in to the regime to receive benefit from the Patent Box.

However, to prevent companies from gaining the benefit for products which are not patentable, the benefit of the Patent Box is not received until the patent is granted.

When the patent is granted – the accumulated profits for the pending period are then included in the calculation.

Calculating the deduction

Once we have gone through the steps set out above, we have calculated RIPP or patent box profit.

We now deduct any Patent Box losses.

If, after deducting those losses, we are left with an excess, we can then apply the patent box deduction

The RIPP / patent box profit x ((19%-10%) / 19%)

This deduction is the deducted from the trading profits to give a revised profit figure that is to be subjected to corporation tax.


If you have any queries about this article or Patent Box in general, then please do get in touch.

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