KPMG Leader Pushes To Include AI In UK Patent Box Scheme

The race to attract top-tier artificial intelligence companies to the UK is intensifying. Recently, London Mayor Sadiq Khan invited Anthropic CEO Dario Amodei to establish operations in the capital, highlighting a broader push to make Britain a global AI hub. This comes off the back of Chancellor Rachel Reeves announcing the creation of dedicated “AI zones” in the last Budget, backed by billions in additional investment designed to drive national renewal and boost UK businesses, jobs, and innovation.

However, according to Tim Sarson, head of tax policy at KPMG, the UK is missing a crucial piece of the puzzle: a modernised tax incentive. Writing in City AM, Sarson argues that to truly compete on the global stage, the government must broaden the UK’s existing Patent Box regime to encompass a wider range of AI applications.

Currently, the UK’s Patent Box allows companies to apply a highly reduced Corporation Tax rate of 10% on profits derived from patented inventions. The problem, as Sarson points out, is that the vast majority of software and AI models are protected by copyright, not patents. This strict criterion means that most domestic tech developers cannot benefit from the relief, often prompting them to relocate their valuable intellectual property to countries with more accommodating tax environments.

To stem this flow of intellectual property, Sarson points to successful, broader frameworks across the Channel. For instance, the French IP Box (governed by Article 238 of the General Tax Code) offers a 10% preferential tax rate not just on formal patents, but on original, copyrighted software. Similarly, the Netherlands’ Innovation Box lowers the effective tax rate to 9% for internally developed software, provided the company holds a valid R&D declaration, sidestepping the need for a formal patent altogether.

Sarson suggests the UK must transition to a similar “IP Box” to secure its fair share of global AI profits. He argues that changing the scheme could potentially “pay for itself” based on its huge success within the pharmaceutical and life sciences sectors, where products are easier to patent, which gives companies a clear access route to the Patent Box Scheme.

Yet, as tax consultancy Forrest Brown clarifies, it is a myth that software and AI are completely excluded from the current UK regime. While certainly challenging, software can be patented if it provides a tangible “technical contribution” to a real-world problem.

This is explicitly backed by HMRC guidelines, which confirm that applied AI solving specific technical hurdle is entirely patentable, making the examples of an AI-powered number plate recognition system or an algorithm optimising a device’s virtual keyboard. Conversely, so-called “core AI” algorithms even with practical benefits that are “non-technical” remain excluded from the Scheme. This includes, as per HMRC’s example, AI data analysis, neural network optimisation or AI-driven financial transaction managers.

While industry figures like Sarson lobby the government for broader legislative changes, AI companies should not automatically assume they are ineligible under today’s rules. Navigating the intersection of software development and patent law is complex but can be highly rewarding.

If you want to evaluate whether your AI or software projects qualify for the 10% tax rate, Finerva’s Patent Box service offers expert feasibility studies and comprehensive claim management to help you maximise your relief.