Commentary on Sections Glossary Overview
1636.This Part provides for patent allowances. The allowances are available to persons who incur qualifying expenditure on patent rights for the purposes of a trade or who are taxable on any income receivable from those patent rights. Qualifying expenditure is pooled for the purpose of calculating entitlement to allowances and liability to charges.
1637.Chapter 1 introduces the Part. It requires a person to have incurred qualifying expenditure on purchasing patent rights to get allowances. It defines “patent rights” and provides for the application of the Part to:
	rights to acquire future patent rights; and
	the grant and acquisition of licences.
1638.Chapter 2 defines “qualifying expenditure” for the purposes of patent allowances. This may be qualifying trade expenditure or qualifying non-trade expenditure.
1639.Chapter 3 deals with determining entitlement to allowances or liability to charges and calculating the amounts involved. Qualifying expenditure is pooled. There is a separate pool for each trade for which there is qualifying trade expenditure and one pool for qualifying non-trade expenditure. Disposal receipts can arise in relation to qualifying expenditure. Disposal receipts come out of the pool and effectively reduce entitlement to allowances or result in balancing charges. The disposal receipt (or total disposal receipts if there are part disposals of the patent rights) in relation to an item of qualifying expenditure is limited to that qualifying expenditure.
1640.Chapter 4 contains the rules about how allowances and charges are given effect for the chargeable period:
	allowances and charges for qualifying trade expenditure are treated as trading expenses or receipts of the trade; and
	allowances for qualifying non-trade expenditure are deducted from patent income and there are provisions for carry forward of excess allowances. Charges for qualifying non-trade expenditure are treated as Case VI income for income tax and as patent income for corporation tax.
1641.Chapter 5 contains supplementary provisions. These include a rule limiting qualifying expenditure in cases of purchases between connected parties or for avoidance.
1642.Provisions for expenditure incurred before 1 April 1986 are in paragraphs 92 to 102 of Schedule 3.