Section 461 | Spreading of patent royalty receipts

(1)A person who makes a claim is entitled to a tax reduction for a tax year in which the person receives a payment of a royalty or other sum if—

(a)the payment is in respect of the use of a patent,

(b)the use of the patent has extended over a period of two years or more, and

(c)the payment is one from which a sum representing income tax is required to be deducted under section 903.

(2)The amount of the tax reduction is the difference between—

(a)the amount of income tax payable by the person in respect of the payment, and

(b)the total amount of income tax which would have been payable by the person in respect of the payment on the assumptions in subsection (3).

(3)Those assumptions are that—

(a)the payment was made in a number of equal instalments at yearly intervals,

(b)the last instalment was paid on the date on which the payment was in fact made, and

(c)the number of instalments was the same as the number of complete years in the period over which the use of the patent extended, but subject to a maximum of 6.

(4)The tax reduction is given effect at Step 6 of the calculation in section 23.