B5.330 Intellectual property—patent royalties
A royalty or other sum in respect of the use of a patent is payable under deduction of income tax (see A4.435). Case law has established that this does not include payments of a capital nature.
As regards payment of patent royalties without deduction of tax to an associated company in an EU member state before 1 June 2021, see A4.450–A4.455.
There are separate provisions requiring tax to be deducted from the purchase price of patent rights from a person not resident in the UK1.
Spreading of royalties
Where a person receives a royalty in respect of the use of a patent which has covered at least two complete years, they may elect to have the tax payable reduced to what it would have been if the royalty had been paid in so many annual amounts as there are complete years in the period, subject to a maximum of six annual amounts2. This rule applies for both income tax and corporation tax purposes. See A4.437.
Capital or revenue—case law
The
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