ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL Specific rules about patent royalties
This change also more fully aligns the mechanics of the legislative approach to patent royalties with that for annual payments.
Patent royalties will in future be deductible in calculating net income where appropriate, but tax will still be deducted and accounted for in respect of such payments. This involves repealing section 387 of ICTA and section 51 of ITTOIA (and the corresponding entry in the table in section 272 of ITTOIA) and, as a consequence, the latter part of section 388(5) of ICTA (interaction of section 387 payments with terminal loss relief).
This is in principle in taxpayers’ favour, because of the removal of the restrictions in section 387(2) of ICTA, but should not change things in practice as any payment falling foul of them would be very unlikely to qualify as a trading deduction.