Advanced Taxation (UK) · Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

R&D Relief, Patent Box and Intangible Assets Tax

Updated 11 October 2026 · Fact-checked

Intangible fixed assets are taxed broadly as they are accounted for. R&D relief gives a deduction or a taxable credit for qualifying R&D spending. The patent box taxes profits from patented inventions at a reduced effective rate, which the question gives you. To solve questions, identify the asset or spend, apply the relief, then compute the tax saving.

Understand Intangible Assets, Research and Development and Patent Box

A company's intangible assets include goodwill, patents, trade marks, licences and software. For corporation tax, the profits, gains and losses on these follow the company's accounts. Amortisation and impairment are generally deductible and credits are taxable, provided the asset is held for the trade. Gains on disposal are taxed as income (not as chargeable gains). Check whether the asset is held in the business, and whether the company is buying from or selling to a related party.

There is a form of rollover relief on intangibles. It is claimed by the company, it is not automatic. If sale proceeds are reinvested in qualifying intangible assets, the gain is deferred by reducing the cost of the replacement intangible asset. The reinvestment window is 12 months before to 36 months after the disposal. These details are outside the ACCA tax tables, so follow any facts the question gives you. Transfers within a 75% group are normally on a no gain, no loss basis. If an examiner gives you a sale of a patent or licence, think of deferral and group planning.

R&D relief rewards spending on projects that seek an advance in science or technology. The deductible costs are revenue costs such as staff, externally provided workers, consumables, software and some utilities. Since April 2024 there is one merged scheme, which works like the old RDEC. The company claims an above-the-line expenditure credit, calculated as a percentage of qualifying spend. The credit is taxable income. It is first set against the company's corporation tax liability. Any balance can be paid out or carried forward, subject to rules such as the PAYE and NIC cap.

The old SME scheme gave an extra deduction. A separate scheme (enhanced R&D intensive support) still gives extra deduction and payable credit to loss-making R&D-intensive SMEs. The key difference: the merged credit is taxable and is paid or set off, while the SME-type relief is a deduction that creates or increases a loss. The credit percentages are not in the supplied tax tables, so do not rely on memory. Apply the figures in the question.

The patent box is an elective regime. It lets a company tax profits from qualifying patented inventions at a reduced effective rate instead of the normal rate. The patent box rate is not in the supplied tax tables, so take it from the question. The examples here use 10% as a given figure. The relevant IP profits are found by taking the IP income and stripping out a routine return and marketing returns. The result is then scaled by the nexus fraction, which compares the company's own qualifying R&D spend to total R&D spend, so outsourced or acquired R&D reduces the benefit. In the examples, the relief is shown as a deduction from total profits that brings the effective rate on those profits down to the given rate. Treat the election mechanics as a condition to mention, and follow the question for any detail.

Key rules to remember

Corporation tax rates (from tables): Profits up to £50,000: small profits rate 19%. Profits over £250,000: main rate 25%. Profits between £50,000 and £250,000: 25% less marginal relief, where marginal relief = (£250,000 − augmented profits) × 3/200 × taxable total profits ÷ augmented profits. The £50,000 and £250,000 limits are divided by (1 + the number of associated companies).; Taken from the ACCA tax tables. Use them to choose the rate when valuing R&D credits and patent box deductions. Check augmented profits and associated companies before you pick the rate.
Merged scheme R&D credit: Credit = qualifying R&D expenditure × credit rate given in the question; The credit is taxable trading income. It is first set against the company's corporation tax liability.
Net benefit of the credit: Net benefit = credit × (1 − corporation tax rate); Equals tax without the credit less tax payable with the credit, when the whole credit is set against the liability. Check the rate that applies to the company's profits. The qualifying expenditure is already deducted in the normal way.
Patent box deduction: Deduction = relevant IP profits × (main rate − patent box rate) ÷ main rate; The patent box rate is not in the tax tables. Take it from the question (10% in the example). Reduce IP profits by the nexus fraction first if the question gives one.
Nexus fraction: Nexus fraction = qualifying R&D expenditure ÷ overall R&D expenditure; Restricts patent box relief where R&D is outsourced to connected parties or the IP is acquired.

How to solve Intangible Assets, Research and Development and Patent Box questions

Use the same order for any question on intangibles, R&D or the patent box. Show every working and state any assumptions.

1Identify the type of asset or spend: intangible fixed asset, R&D project, or patented IP.
2Check whether the question asks for tax treatment, a computation or advice on minimising tax.
3For intangibles: follow the accounts for debits and credits, then consider rollover relief or group no gain, no loss transfers.
4For R&D: confirm the project seeks a scientific or technological advance, list qualifying costs, then apply the scheme in the question (merged credit, or loss-maker relief).
5For the patent box: confirm the company holds a qualifying patent, find relevant IP profits, apply the nexus fraction, then compute the deduction.
6Compute taxable total profits, then corporation tax using the correct rate band, and compare with the position without the relief.
7State the saving and any conditions or risks, for example the election, the PAYE cap, or claim deadlines.

Quickest way: Rate-times-base shortcut

When to use it: Use it when a question gives the numbers and asks only for the tax saving from a relief.

Write the base: R&D spend or relevant IP profits.
Multiply the base by the rate in the question, or use the patent box deduction formula with the patent box rate given.
Convert to tax: multiply by the corporation tax rate, or use the patent box rate given in the question.
Compare tax with and without the relief, as one line each.
Add one sentence on conditions, for example the election or the nexus fraction.

Common mistakes in Intangible Assets, Research and Development and Patent Box

Treating the merged scheme credit as tax-free.
Students remember the credit as a cash benefit and forget it is taxable.
Fix: Add the credit to trading profits first, then compute corporation tax. Show the net benefit after tax.
Mixing up the SME relief and the merged scheme.
Older study material still describes the SME extra deduction and RDEC as separate schemes.
Fix: Read the question for which scheme applies. Use the merged credit for normal claims and the extra deduction only for loss-making R&D-intensive companies.
Applying the patent box to all profits.
Students overlook that only relevant IP profits qualify.
Fix: Isolate IP profits, apply the nexus fraction, then take the deduction. Other profits stay at the normal rate.
Using the wrong corporation tax rate for the deduction.
Students forget the rate depends on profits and marginal relief.
Fix: Check taxable and augmented profits against £50,000 and £250,000 in the tax tables before choosing a rate. Remember associated companies reduce the limits.
Taxing intangible disposals as chargeable gains.
Students apply the usual capital gains rules for companies.
Fix: Intangible fixed asset gains and losses are dealt with as income under the intangibles regime. Note the rollover relief option.

Worked examples

Example 1

Alpha Ltd has a trading profit of £500,000 after deducting £200,000 of qualifying R&D expenditure, and before including any R&D credit. Assume the merged scheme credit rate is 20% and the company pays corporation tax at 25%. Compute the corporation tax payable and the saving from the credit. Ignore the PAYE and NIC cap.

Show the solution

Tax without the credit = £500,000 × 25% = £125,000.
Credit = £200,000 × 20% = £40,000.
The credit is taxable. Profits with the credit = £500,000 + £40,000 = £540,000.
Profits exceed £250,000, so the main rate of 25% applies. Tax before setting off the credit = £540,000 × 25% = £135,000. This already includes £10,000 of tax on the credit.
The gross credit is set against the liability. Tax payable = £135,000 − £40,000 = £95,000.
Saving = £125,000 − £95,000 = £30,000. This equals £40,000 × (1 − 25%).

Answer: Corporation tax payable is £95,000, compared with £125,000 without the credit. The credit saves a net £30,000.

Example 2

Beta Ltd has total profits of £700,000, including £300,000 of relevant IP profits eligible for the patent box. Assume the question gives a nexus fraction of 100%, a patent box rate of 10% and a main rate of 25%. Compute the corporation tax and the saving.

Show the solution

Deduction = £300,000 × (25% − 10%) ÷ 25% = £300,000 × 15 ÷ 25 = £180,000.
Taxable profits = £700,000 − £180,000 = £520,000.
Tax = £520,000 × 25% = £130,000.
Without relief: £700,000 × 25% = £175,000.
Saving = £175,000 − £130,000 = £45,000, which equals 15% of £300,000.

Answer: Corporation tax is £130,000, a saving of £45,000. The relevant IP profits bear an effective 10% (£30,000 tax), using the rate given in the question.

Example 3

Gamma Ltd has no associated companies and no dividend income. Its 12-month trading profit is £200,000 after deducting £60,000 of qualifying R&D expenditure, and before including any R&D credit. Assume the merged scheme credit rate given in the question is 20%. Compute the corporation tax payable with the credit, and the net saving from the credit. Ignore the PAYE and NIC cap.

Show the solution

Credit = £60,000 × 20% = £12,000. The credit is taxable trading income.
Taxable total profits with the credit = £200,000 + £12,000 = £212,000. With no dividends, augmented profits are also £212,000.
Profits are between £50,000 and £250,000, so marginal relief applies.
Tax at the main rate = £212,000 × 25% = £53,000.
Marginal relief = (£250,000 − £212,000) × 3/200 × (£212,000 ÷ £212,000) = £38,000 × 3/200 = £570.
Tax before setting off the credit = £53,000 − £570 = £52,430.
Set the credit against the liability. Tax payable = £52,430 − £12,000 = £40,430.
Tax without the credit: £200,000 × 25% = £50,000, less marginal relief (£250,000 − £200,000) × 3/200 = £750, giving £49,250.
Saving = £49,250 − £40,430 = £8,820. The extra tax on the credit is £52,430 − £49,250 = £3,180, which is 26.5% of £12,000 (25% plus 1.5% lost marginal relief). So the net benefit is £12,000 × (1 − 26.5%) = £8,820.

Answer: Corporation tax payable is £40,430, compared with £49,250 without the credit. The net saving is £8,820, because the credit is taxed at an effective 26.5% in the marginal relief band.

Exam tips

Use the rates and credit percentages given in the question or tax tables. Do not quote them from memory.
Show the with and without relief comparison. It earns the advice and professional skills marks.
In an advice question, mention conditions: patent box election, nexus fraction, project qualifying as R&D, and possible PAYE cap on payable credits.
State clearly if a loss-making company could claim a payable credit rather than carry the loss forward. Say which is more tax-efficient.
Note the treatment of group transfers of intangibles, and remember to apply the correct corporation tax rate band.

Practice questions from Corporation tax: the use of exemptions and reliefs in deferring and minimising corporation tax liabilities

Intangible Assets, Research and Development and Patent Box in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsIntangible Assets, R&D and Other Company Reliefs

Intangible Assets, Research and Development and Patent Box: frequently asked questions

What is the difference between SME relief and RDEC?

The old SME scheme gave an extra deduction, so a loss-making company could surrender losses for a cash credit. RDEC gave a taxable above-the-line credit. From April 2024 most claims go through the merged scheme, which works like RDEC. A separate enhanced scheme remains for loss-making R&D-intensive SMEs.

How do I claim patent box relief?

The company must hold a qualifying patent and elect into the regime. It then works out relevant IP profits and applies the nexus fraction. The patent box rate is not in the ACCA tax tables, so take it and any other detail from the question.

How are intangible assets taxed for a company?

Debits and credits follow the accounts, for example amortisation and impairment. Disposal gains and losses are income items, not chargeable gains. Rollover relief can be claimed on reinvestment, and group no gain, no loss transfers are available.

Do I need to memorise the R&D credit rate?

No. Use the rate in the question, as the credit percentage is not in the ACCA tax tables. What matters is knowing that the merged credit is taxable and is set against the corporation tax liability first.