Finance Act 2000

Treatment of expenditure where company and sub-contractor are connected persons U.K.

10 (1) Where— U.K.

(a) the company and the sub-contractor are connected persons, and

(b) in accordance with [F1 generally accepted accounting practice]—

(i) the whole of the sub-contractor payment has been brought into account in determining the sub-contractor’s profit or loss for a relevant period, and

(ii) all of the sub-contractor’s relevant expenditure has been so brought into account,

the whole of the payment (up to the amount of the sub-contractor’s relevant expenditure) is qualifying expenditure on sub-contracted research and development.

(2) In sub-paragraph (1)—

(a) references to the “relevant expenditure" of the sub-contractor are to expenditure that—

(i) is incurred by the sub-contractor in carrying on, on behalf of the company, the activities to which the sub-contractor payment relates,

(ii) is not of a capital nature,

(iii) is incurred on staffing costs or on [F2 software or consumable items] [F3 or is qualifying expenditure on externally provided workers], and

(iv) is not subsidised;

(b) a “relevant period” means a period

(i) for which accounts are drawn up for the sub-contractor, and

(ii) that ends not more than twelve months after the end of the company’s period of account in which the sub-contractor payment is, in accordance with [F4 generally accepted accounting practice], brought into account in determining the company’s profit or loss.

[F5 (3) For the purpose of determining whether the sub-contractor’s expenditure meets the requirements of sub-paragraph (2)(a)(iii) and (iv), the following provisions apply—

(a) paragraph 5 (staffing costs),

(b) paragraph 8 (subsidised expenditure), and

(c) paragraphs 8A to 8E (qualifying expenditure on externally provided workers),

but for that purpose the references in those paragraphs to a company shall be read as references to the sub-contractor.]

(4) Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this paragraph shall be made on a just and reasonable basis.

Textual Amendments

F1 Words in Sch.20 para.10(1)(b) substituted (24.7.2002) by 2002 c. 23, s. 103(4)(f)

F2 Words in Sch. 20 substituted (1.4.2005) (with effect in accordance with s. 141(3)-(7) of the amending Act) by Finance Act 2004 (c. 12), s. 141(2)(a); S.I. 2005/123, art. 2

F3 Words in Sch. 20 para. 10(2)(a)(iii) inserted (10.7.2003) (with effect in accordance with s. 168(3)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 7(2)

F4 Words in Sch. 20 para. 10(2)(b)(ii) substituted (24.7.2002) by 2002 c. 23, s. 103(4)(f)

F5 Sch. 20 para. 10(3) substituted (10.7.2003) (with effect in accordance with s. 168(3)(a) of the amending Act) by Finance Act 2003 (c. 14), Sch. 31 para. 7(3)