Section 903 — Income Tax Act 2007: Deduction from patent royalties

Deduction from patent royalties 903 1 This section applies to any payment made in a tax year if—

a it is a payment of a royalty or other sum in respect of the use of a patent, and b it meets the conditions in subsections (2) to (4).

2 The payment must not be—

a a qualifying annual payment, or b an annual payment to which section 904 applies (annual payments for dividends or non-taxable consideration).

3 The payment must arise in the United Kingdom.

4 The payment must be one that is charged to income tax or corporation tax.

5 If the person who makes the payment is an individual—

a the person must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year, and b income tax equal to the sum required to be deducted is to be collected through the person's self-assessment return (see Chapter 17).

6 If the person who makes the payment is not an individual, and has some modified net income for the tax year (see section 1025)—

a the person must, on making the payment, deduct from it a sum representing income tax on it at the basic rate in force for the tax year, and b income tax equal to the sum required to be deducted is to be collected through the person's self-assessment return (see Chapter 17).

7 If the person who makes the payment—

a is not an individual, and b has no modified net income for the tax year, the person by or through whom the payment is made must, on making it, deduct from it a sum representing income tax on it at the basic rate in force for the tax year.

8 See Chapter 8 which makes special provision in relation to royalties (double taxation arrangements: deduction at treaty rate and EU companies: discretion to pay gross).

9 For provision about the collection of income tax in respect of a payment from which a sum must be deducted under subsection (7)—

a see Chapter 15 if the person making the payment is a UK resident company, and b otherwise see Chapter 16.