1(1)A company is entitled to R&D tax relief for an accounting period if—U.K.
(a)the company qualifies as a small or medium-sized enterprise in the period (see paragraph 2), and
(b)[F1the aggregate of its qualifying R&D expenditure (see [F2paragraph 3),] its qualifying sub-contracted R&D expenditure (within the meaning of paragraph 8 of Schedule 12 to the Finance Act 2002) [F3and its qualifying additional SME expenditure (as defined in paragraph 10B of that Schedule)] deductible in that period is not less than]—
(i)[F4£10,000], if the accounting period is a period of 12 months, or
(ii)such amount as bears to [F5£10,000] the same proportion as the accounting period bears to 12 months.
(2)For the purposes of sub-paragraph (1) a company’s qualifying R&D expenditure is deductible in an accounting period if—
(a)it is allowable as a deduction in computing for tax purposes the profits for that period of a trade carried on by the company, or
(b)it would have been allowable as such a deduction had the company, at the time the expenditure was incurred, been carrying on a trade consisting of the activities in respect of which it was incurred.
(3)For the purposes of sub-paragraph (2)(a) no account shall be taken of section 401 of the Taxes Act 1988 (pre-trading expenditure treated as incurred when trading begins).
[F6(3A)For the purposes of sub-paragraph (1)(b)[F7, each of the following—
(a)]a company’s qualifying sub-contracted R&D expenditure (within the meaning of paragraph 8 of Schedule 12 to the Finance Act 2002)[F8, and]
[F9(b)a company’s qualifying additional SME expenditure (as defined in paragraph 10B of that Schedule),]
is deductible in an accounting period if it is allowable as a deduction in computing for tax purposes the profits for that period of a trade carried on by the company.]
(4)In relation to an accounting period beginning before and ending on or after 1st April 2000, the references in sub-paragraph (1)(b)(i) and (ii) to the accounting period shall be read as references to so much of it as falls on or after that date.
Textual Amendments
F1Words in Sch. 20 para. 1(1)(b) substituted (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 2(1)(a) (with Sch. 15 para. 1(2))
F2Words in Sch. 20 para. 1(1)(b) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(2)(a)
F3Words in Sch. 20 para. 1(1)(b) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(2)(b)
F4Word in Sch. 20 para. 1(1)(b)(i) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 2(2)
F5Word in Sch. 20 para. 1(1)(b)(ii) substituted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 2(2)
F6Sch. 20 para. 1(3A) inserted (24.7.2002 with effect as mentioned in s. 56 of the amending Act) by 2002 c. 23, s. 56, Sch. 15 para. 2(1)(b) (with Sch. 15 para. 2(2))
F7Word in Sch. 20 para. 1(3A) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(a)
F8Word in Sch. 20 para. 1(3A) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(b)
F9Sch. 20 para. 1(3A)(b) inserted (10.7.2003) (with effect in accordance with s. 168(4)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 3(3)(c)