Corporation Tax Act 2009

Part 13 U.K. Additional relief for expenditure on research and development

Chapter 1 U.K. Introduction

Introductory U.K.

1039 Overview of Part U.K.

(1) This Part provides for corporation tax relief for expenditure on research and development.

(2) Relief under this Part is in addition to any deduction given under section 87 for the expenditure.

(3) Relief under [F1 Chapter 2] is available to a company which is a small or medium-sized enterprise, in particular—

(a) Chapter 2 provides for relief where the cost of in-house direct research and development or contracted out research and development is incurred by the company,

F2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F3 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Chapter 6 contains further provision in relation to relief under [F4 Chapter 2] , in particular—

(a) section 1081 provides for certain insurance companies to be treated as large companies,

F5 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F5 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(d) section 1084 contains an anti-avoidance provision dealing with artificially inflated claims for relief or R&D tax credits (as to which, see subsection (7) below).

(6) Relief under Chapter 7 is available to [F6 large companies] where expenditure is incurred on vaccine or medicine research.

(7) [F7 Chapter 2 also provides] for the payment of tax credits (“R&D tax credits”) where a company which is a small or medium-sized enterprise—

(a) obtains relief under Chapter 2 F8 ..., and

(b) makes, or is treated as making, a trading loss.

(8) Chapter 8 contains provision limiting the amount of relief available under Chapter 2 or 7 in relation to expenditure on a particular research and development project.

(9) Chapter 9 contains supplementary provision, including definitions.

(10) For information about the procedure for making claims under this Part see Schedule 18 to FA 1998, in particular Part 9A of that Schedule (claims for R&D tax reliefs).

Textual Amendments

F1 Words in s. 1039(3) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 13(2)(a)

F2 S. 1039(3)(b)(c) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 13(2)(b)

F3 S. 1039(4) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 13(3)

F4 Words in s. 1039(5) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 13(4)(a)

F5 S. 1039(5)(b)(c) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 13(4)(b)

F6 Words in s. 1039(6) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 16(2)

F7 Words in s. 1039(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 16(3)(a)

F8 Words in s. 1039(7)(a) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 16(3)(b)

1040 Relief may be available under more than one Chapter of Part U.K.

Expenditure may be eligible for relief under more than one Chapter of this Part.

[F9 1040ZA Restriction on claiming other tax reliefs U.K.

(1) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15 (film tax relief), see section 1195(3A).

(2) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15A (television tax relief), see section 1216C(4).

(3) For provision prohibiting relief being given under this Part and under Chapter 3 of Part 15B (video games tax relief), see section 1217C(4).

[F10 (4) For provision prohibiting relief being given under this Part and under section 1217H or 1217K (theatrical productions: additional deduction or theatre tax credit), see section 1217JA(2).]]

Textual Amendments

F9 S. 1040ZA inserted (with effect in accordance with Sch. 18 para. 23 of the amending Act) by Finance Act 2013 (c. 29), Sch. 18 paras. 10, 22; S.I. 2013/1817, art. 2(2); S.I. 2014/1962, art. 2(3)

F10 S. 1040ZA(4) inserted (with effect in accordance with Sch. 4 para. 17 of the amending Act) by Finance Act 2014 (c. 26), Sch. 4 paras. 11, 16; S.I. 2014/2228, art. 2

[F11 1040A R&D expenditure credits U.K.

(1) For provision enabling a company carrying on a trade to make a claim for an amount in respect of expenditure on research and development (an “R&D expenditure credit”) to be brought into account as a receipt in calculating the profits of the trade for an accounting period, see Chapter 6A of Part 3.

(2) For provision prohibiting a company from making a claim for an R&D expenditure credit and for relief under this Part in respect of the same expenditure, see section 104B.]

Textual Amendments

F11 S. 1040A inserted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 2(2)

Interpretation U.K.

1041 “Research and development” U.K.

In this Part “research and development” has the meaning given by [F12 section 1138 of CTA 2010].

Textual Amendments

F12 Words in s. 1041 substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 666 (with Sch. 2)

1042 “Relevant research and development” U.K.

(1) In this Part “relevant research and development”, in relation to a company, means research and development—

(a) related to a trade carried on by the company, or

(b) from which it is intended that a trade to be carried on by the company will be derived.

(2) Research and development related to a trade carried on by a company includes—

(a) research and development which may lead to or facilitate an extension of the trade, and

(b) research and development of a medical nature which has a special relation to the welfare of workers employed in the trade.

(3) But any reference to “relevant research and development” which applies for the purposes of Chapter 7 (relief for F13 ... large companies: vaccine research etc) is to be read as if subsection (2)(b) were omitted.

Textual Amendments

F13 Words in s. 1042(3) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 17

Chapter 2 U.K. Relief for SMEs: cost of R&D incurred by SME

Introductory U.K.

1043 Overview of Chapter U.K.

(1) This Chapter provides for relief for companies which are small or medium-sized enterprises for expenditure on—

(a) in-house direct research and development, or

(b) contracted out research and development,

where the cost of the research and development is incurred by the company.

(2) The reliefs available are—

(a) an additional deduction under section 1044, or

(b) a deemed trading loss under section 1045.

(3) Sections 1046 to 1053 contain provision relevant to the reliefs available under this Chapter, namely—

(a) provision preventing a company from making a claim or election for relief if it is not a going concern (see section 1046),

(b) information about elections under section 1045 for a deemed trading loss (see section 1047),

(c) information about the treatment of a deemed trading loss (see section 1048),

(d) a restriction on consortium relief where relief is obtained (see section 1049),

F14 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .and

(f) provision about when a company's expenditure is “qualifying Chapter 2 expenditure” for those purposes (see sections 1051 to 1053).

(4) Sections 1054 to 1062 deal with R&D tax credits which can be claimed if a company—

(a) obtains relief under this Chapter, and

(b) makes, or is treated as making, a trading loss.

Textual Amendments

F14 S. 1043(3)(e) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(2)

Reliefs U.K.

1044 Additional deduction in calculating profits of trade U.K.

(1) A company is entitled to corporation tax relief for an accounting period if it meets each of conditions A to D.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

F15 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the company carries on a trade in the period.

(5) Condition D is that the company has qualifying Chapter 2 expenditure which is allowable as a deduction in calculating for corporation tax purposes the profits of the trade for the period.

(6) For the company to obtain the relief it must make a claim.

See section 1046 (which prevents a company from making a claim if it is not a going concern).

(7) The relief is an additional deduction in calculating the profits of the trade for the period.

(8) The amount of the additional deduction is [F16 130%] of the qualifying Chapter 2 expenditure.

(9) This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).

(10) For the meaning of “qualifying Chapter 2 expenditure” see section 1051.

Textual Amendments

F15 S. 1044(3) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(3)

F16 Word in s. 1044(8) substituted (with effect in accordance with s. 27(5) of the amending Act) by Finance Act 2015 (c. 11), s. 27(3)(a)

1045 Alternative treatment for pre-trading expenditure: deemed trading loss U.K.

(1) A company is entitled to corporation tax relief for an accounting period if it meets conditions AF17 ... and C.

(2) Condition A is that the company is a small or medium-sized enterprise in the period.

F18 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the company has incurred qualifying Chapter 2 expenditure in the period which—

(a) is not allowable as a deduction in calculating for corporation tax purposes the profits of a trade carried on by it at the time the expenditure was incurred, but

(b) would have been so allowable had it, at that time, been carrying on a trade consisting of the activities in respect of which the expenditure was incurred.

(5) For the company to obtain the relief it must make an election.

See section 1046 (which prevents a company from making an election if it is not a going concern).

(6) The relief is that the company is treated as if it had made a trading loss in the period.

(7) The trading loss is equal to [F19 230%] of the qualifying Chapter 2 expenditure.

(8) If a company makes an election under this section in respect of qualifying Chapter 2 expenditure, section 61 (pre-trading expenses) does not apply to the expenditure.

(9) This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).

(10) For the meaning of “qualifying Chapter 2 expenditure” see section 1051.

(11) See also section 1137, which makes provision about the accounting periods of a company which is not within the charge to corporation tax.

Textual Amendments

F17 Word in s. 1045(1) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(4)(a)

F18 S. 1045(3) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(4)(b)

F19 Word in s. 1045(7) substituted (with effect in accordance with s. 27(5) of the amending Act) by Finance Act 2015 (c. 11), s. 27(3)(b)

Reliefs: further provision U.K.

1046 Relief only available where company is going concern U.K.

(1) A company may only make—

(a) a claim under section 1044, or

(b) an election under section 1045,

at a time when it is a going concern.

(2) For the purposes of this section a company is a going concern if—

(a) its latest published accounts were prepared on a going concern basis, and

(b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F20 ....

[F21 This is subject to subsection (2A).]

[F22 (2A) A company is not a going concern at any time if it is in administration or liquidation at that time.

(2B) For the purposes of this section a company is in administration if—

(a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(2C) For the purposes of this section a company is in liquidation if—

(a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.]

(3) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Textual Amendments

F20 Words in s. 1046(2)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 18

F21 Words in s. 1046(2) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 10(2)

F22 S. 1046(2A)-(2C) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 10(3)

1047 Elections under section 1045 U.K.

(1) An election under section 1045 must specify the accounting period in respect of which it is made.

(2) The election must be made by notice in writing to an officer of Revenue and Customs.

(3) The notice must be given before the end of the period of two years beginning immediately after the end of the accounting period to which the election relates.

1048 Treatment of deemed trading loss under section 1045 U.K.

(1) This section applies if under section 1045 a company is treated as making a trading loss in an accounting period.

(2) The trading loss may not be [F23 deducted from] profits of a preceding accounting period under [F24 section 37(3)(b) or 42 of CTA 2010] unless the company is entitled to relief under section 1045 for the earlier period.

(3) Subsection (4) applies if—

(a) the company begins, in the accounting period or a later period, to carry on a trade, and

(b) the trade is derived from the research and development in relation to which the relief mentioned in subsection (1) was obtained.

(4) In that case, so far as—

(a) the company has not obtained relief in respect of the trading loss under any other provision, and

(b) the loss has not been surrendered under [F25 Part 5 of CTA 2010 (group relief)],

the trading loss is to be treated as if it were a loss of that trade brought forward under [F26 section 45 of CTA 2010] (relief of trading losses against future trading profits).

(5) Subsection (4) is subject to section 1062 (restriction on losses carried forward where tax credit claimed).

Textual Amendments

F23 Words in s. 1048(2) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 667(2)(a) (with Sch. 2)

F24 Words in s. 1048(2) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 667(2)(b) (with Sch. 2)

F25 Words in s. 1048(4)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 667(3)(a) (with Sch. 2)

F26 Words in s. 1048(4) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 667(3)(b) (with Sch. 2)

1049 Restriction on consortium relief U.K.

(1) This section applies if—

(a) a company claims relief under section 1044 or elects to obtain relief under section 1045 in respect of an accounting period,

(b) at any time during the period the company is owned by a consortium, and

(c) at least one of the members of the consortium is a large company.

(2) The amount of the relief obtained in respect of the accounting period may not be surrendered by the company to another company, for the purposes of a consortium group relief claim, unless the other company is a small or medium-sized enterprise.

(3) A “consortium group relief claim” means a claim to group relief [F27 based on consortium condition 1, 2 or 3 in sections 132 and 133 of CTA 2010] (group relief available between members of consortia).

Textual Amendments

F27 Words in s. 1049(3) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 668 (with Sch. 2)

Threshold U.K.

F28 1050 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F28 S. 1050 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 3(5)

Qualifying expenditure U.K.

1051 Qualifying Chapter 2 expenditure U.K.

For the purposes of this Part a company's “qualifying Chapter 2 expenditure” means—

(a) its qualifying expenditure on in-house direct research and development (see section 1052), and

(b) its qualifying expenditure on contracted out research and development (see section 1053).

1052 Qualifying expenditure on in-house direct R&D U.K.

(1) A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of [F29 conditions A, B, D and E] is met.

(2) Condition A is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software or consumable items (see section 1125),

(c) qualifying expenditure on externally provided workers (see section 1127), or

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(3) Condition B is that the expenditure is attributable to relevant research and development undertaken by the company itself.

F30 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(6) Condition E is that the expenditure is not subsidised (see section 1138).

(7) See sections 1124, 1126 [F31 to 1126B] and 1132 for provision about when expenditure within subsection (2)(a), (b) or (c) is attributable to relevant research and development.

Textual Amendments

F29 Words in s. 1052(1) substituted (with effect in accordance with s. 13(8) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 13(2)(a)

F30 S. 1052(4) omitted (with effect in accordance with s. 13(8) of the amending Act) by virtue of Finance (No. 3) Act 2010 (c. 33), s. 13(2)(b)

F31 Words in s. 1052(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(g)

1053 Qualifying expenditure on contracted out R&D U.K.

(1) A company's “qualifying expenditure on contracted out research and development” means expenditure—

(a) which is incurred by it in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136), and

(b) in relation to which each of [F32 conditions A, C and D] is met.

(2) Condition A is that the expenditure is attributable to relevant research and development undertaken on behalf of the company.

F33 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(5) Condition D is that the expenditure is not subsidised (see section 1138).

(6) See sections 1124, 1126 [F34 to 1126B] and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Textual Amendments

F32 Words in s. 1053(1)(b) substituted (with effect in accordance with s. 13(8) of the amending Act) by Finance (No. 3) Act 2010 (c. 33), s. 13(3)(a)

F33 S. 1053(3) omitted (with effect in accordance with s. 13(8) of the amending Act) by virtue of Finance (No. 3) Act 2010 (c. 33), s. 13(3)(b)

F34 Words in s. 1053(6) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(h)

Tax credit: entitlement and payment U.K.

1054 Entitlement to and payment of tax credit U.K.

(1) A company is entitled to an R&D tax credit for an accounting period if it has a Chapter 2 surrenderable loss in the period (see section 1055).

(2) For the company to obtain an R&D tax credit in respect of all or part of the Chapter 2 surrenderable loss it must make a claim.

See section 1057 (which prevents a company from making a claim if it is not a going concern).

(3) The amount of an R&D tax credit to which the company is entitled is determined in accordance with section 1058.

(4) If a company makes a claim for an R&D tax credit to which it is entitled for an accounting period, an officer of Revenue and Customs must pay to the company the amount of the credit.

This is subject to section 1060.

(5) This section is subject to section 1113 (cap on R&D aid in relation to a particular research and development project).

(6) See also section 1062, which restricts the carry forward of losses where a company claims an R&D tax credit.

1055 Meaning of “Chapter 2 surrenderable loss” U.K.

(1) For the purposes of this Chapter a company has a “Chapter 2 surrenderable loss” if in an accounting period—

(a) it obtains an additional deduction under section 1044 in calculating the profits of a trade and it makes a trading loss in that period in the trade, or

(b) it is treated as making a trading loss under section 1045.

(2) If relief is obtained under section 1044 the amount of the Chapter 2 surrenderable loss is—

(a) so much of the trading loss as is unrelieved, or

(b) if less, [F35 230%] of the qualifying Chapter 2 expenditure in respect of which the relief was obtained.

(3) If relief is obtained under section 1045 the amount of the Chapter 2 surrenderable loss is so much of the trading loss as is unrelieved.

Textual Amendments

F35 Word in s. 1055(2)(b) substituted (with effect in accordance with s. 27(5) of the amending Act) by Finance Act 2015 (c. 11), s. 27(3)(c)

Modifications etc. (not altering text)

C1 S. 1055 excluded by 2010 c. 4, s. 357PC (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

1056 Amount of trading loss which is “unrelieved” U.K.

(1) This section applies for the purposes of section 1055.

(2) The amount of a trading loss that is “unrelieved” is the amount of the loss reduced by—

(a) any relief that was or could have been obtained by the company making a claim under [F36 section 37(3)(a) of CTA 2010 to deduct the loss from total] profits of the same accounting period,

(b) any other relief obtained by the company in respect of the loss, including relief under [F37 section 37(3)(b) or 42 of CTA 2010 (losses deducted from] profits of an earlier accounting period), and

(c) any loss surrendered under [F38 Part 5 of CTA 2010] (surrender of relief to group or consortium members).

(3) No account is to be taken for this purpose of any losses—

(a) brought forward from an earlier accounting period under [F39 section 45 of CTA 2010], or

(b) carried back from a later accounting period under [F40 section 37(3)(b) or 42] of that Act.

Textual Amendments

F36 Words in s. 1056(2)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 669(2)(a) (with Sch. 2)

F37 Words in s. 1056(2)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 669(2)(b) (with Sch. 2)

F38 Words in s. 1056(2)(c) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 669(2)(c) (with Sch. 2)

F39 Words in s. 1056(3)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 669(3)(a) (with Sch. 2)

F40 Words in s. 1056(3)(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 669(3)(b) (with Sch. 2)

Modifications etc. (not altering text)

C2 S. 1056 applied by 2010 c. 4, s. 357PC (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

1057 Tax credit only available where company is going concern U.K.

(1) A company may only make a claim under section 1054 at a time when it is a going concern.

(2) If a company ceases to be a going concern after making a claim under section 1054, it is treated as if it had not made the claim (and accordingly there is treated as having been no payment of R&D tax credit to carry interest under section 826 of ICTA).

(3) Subsection (2) does not apply so far as the claim relates to an amount that was paid or applied before the company ceased to be a going concern.

(4) For the purposes of this section a company is a going concern if—

(a) its latest published accounts were prepared on a going concern basis, and

(b) nothing in those accounts indicates that they were only prepared on that basis because of an expectation that the company would receive relief or R&D tax credits under this Chapter F41 ....

[F42 This is subject to subsection (4A).]

[F43 (4A) A company is not a going concern at any time if it is in administration or liquidation at that time.

(4B) For the purposes of this section a company is in administration if—

(a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.

(4C) For the purposes of this section a company is in liquidation if—

(a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or

(b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company.]

(5) Section 436(2) of the Companies Act 2006 (meaning of “publication” of documents) has effect for the purposes of this section.

Textual Amendments

F41 Words in s. 1057(4)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 19

F42 Words in s. 1057(4) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 11(2)

F43 S. 1057(4A)-(4C) inserted (with effect in accordance with Sch. 3 para. 40 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 11(3)

Amount of tax credit U.K.

1058 Amount of tax credit U.K.

(1) The amount of the R&D tax credit to which a company is entitled for an accounting period is—

(a) [F44 14.5%] of the amount of the Chapter 2 surrenderable loss for the period, F45 ...

F45 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) The Treasury may by order replace the percentage for the time being specified in subsection (1)(a) with a different percentage.

(3) An order under subsection (2) may contain incidental, supplemental, consequential and transitional provision and savings.

Textual Amendments

F44 Word in s. 1058(1)(a) substituted (with effect in accordance with s. 31(2) of the amending Act) by Finance Act 2014 (c. 26), s. 31(1)

F45 S. 1058(1)(b) and the word immediately preceding it omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 15(2)

Modifications etc. (not altering text)

C3 S. 1058(1) excluded by 2010 c. 4, s. 357PD (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

F46 1059 Total amount of company's PAYE and NIC liabilities U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F46 S. 1059 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 15(3)

Supplementary U.K.

1060 Payment of tax credit U.K.

(1) This section applies if an R&D tax credit for an accounting period is payable to a company under this Chapter.

(2) The amount payable in respect of—

(a) the R&D tax credit, or

(b) interest on the credit payable under section 826 of ICTA,

may be applied in discharging any liability of the company to pay corporation tax.

(3) So far as the amount is so applied, the duty of the officer of Revenue and Customs to pay the credit under section 1054(4) is discharged.

(4) Subsection (5) applies if the company's tax return for the accounting period is enquired into by an officer of Revenue and Customs.

(5) In that case—

(a) no payment in respect of the R&D tax credit for the period need be made before the officer's enquiries are completed (see paragraph 32 of Schedule 18 to FA 1998), but

(b) the officer may make a payment on a provisional basis of such amount as the officer thinks fit.

(6) No payment need be made in respect of the R&D tax credit if the company has outstanding PAYE and NIC liabilities for the period.

(7) A company has outstanding PAYE and NIC liabilities for an accounting period if it has not paid to an officer of Revenue and Customs any amount that it is required to pay—

(a) under PAYE regulations, or

(b) in respect of Class 1 national insurance contributions,

for payment periods ending in the accounting period.

1061 Tax credit payment not income of company U.K.

A payment in respect of an R&D tax credit under this Chapter is not income of the company for any tax purposes.

1062 Restriction on losses carried forward where tax credit claimed U.K.

(1) This section applies if a company claims an R&D tax credit to which it is entitled for an accounting period.

(2) For the purposes of [F47 section 45 of CTA 2010] (relief of trading losses against future trading profits) the company's trading loss for the period is treated as reduced by the amount of the surrendered loss for the period.

(3) The “amount of the surrendered loss” for the period means the amount of the Chapter 2 surrenderable loss in respect of which the company claims an R&D tax credit for the period.

Textual Amendments

F47 Words in s. 1062(2) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 670 (with Sch. 2)

Modifications etc. (not altering text)

C4 S. 1062(2) excluded by 2010 c. 4, s. 357PE (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

C5 S. 1062(3) excluded by 2010 c. 4, s. 357PE (as inserted (with effect in accordance with s. 5 of the amending Act) by Corporation Tax (Northern Ireland) Act 2015 (c. 21), s. 1)

Chapter 3 U.K. Relief for SMEs: R&D sub-contracted to SME

Relief U.K.

F48 1063 Additional deduction in calculating profits of trade U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Pt. 13 Ch. 3 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 14

Threshold U.K.

F49 1064 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F49 S. 1064 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 4(3)

Qualifying expenditure U.K.

F48 1065 Qualifying Chapter 3 expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F48 Pt. 13 Ch. 3 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 14

F50 1066 Expenditure on sub-contracted R&D undertaken in-house U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F50 Pt. 13 Ch. 3 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 14; and words in s. 1066(5) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(i)

F51 1067 Expenditure on sub-contracted R&D not undertaken in-house U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F51 Pt. 13 Ch. 3 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 14; and words in s. 1067(5) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(j)

Chapter 4 U.K. Relief for SMEs: subsidised and capped expenditure on R&D

Relief U.K.

F52 1068 Additional deduction in calculating profits of trade U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F52 Pt. 13 Ch. 4 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 15

Threshold U.K.

F53 1069 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F53 S. 1069 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 5(3)

Qualifying expenditure U.K.

F52 1070 Qualifying Chapter 4 expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F52 Pt. 13 Ch. 4 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 15

F54 1071 Subsidised qualifying expenditure on in-house direct R&D U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F54 Pt. 13 Ch. 4 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 15; and words in s. 1071(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(k)

F55 1072 Subsidised qualifying expenditure on contracted out R&D U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55 Pt. 13 Ch. 4 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 15; and words in s. 1072(8) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(l)

F52 1073 Capped R&D expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F52 Pt. 13 Ch. 4 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 15

Chapter 5 U.K. Relief for large companies

Relief U.K.

F56 1074 Additional deduction in calculating profits of trade U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F56 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16

Threshold U.K.

F57 1075 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F57 S. 1075 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 6(3)

Qualifying expenditure U.K.

F56 1076 Qualifying Chapter 5 expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F56 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16

F58 1077 Qualifying expenditure on in-house direct R&D U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F58 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16; and words in s. 1077(6) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(m)

F59 1078 Qualifying expenditure on contracted out R&D U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F59 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16; and words in s. 1078(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(n)

F56 1079 Qualifying expenditure on contributions to independent R&D U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F56 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16

Insurance companies U.K.

F56 1080 Entitlement to relief: I minus E basis U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F56 Pt. 13 Ch. 5 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 16

Chapter 6 U.K. Chapters 2 to 5: further provision

1081 Insurance companies treated as large companies U.K.

(1) This section applies if an insurance company—

(a) carries on life assurance business in an accounting period, and

(b) is a small or medium-sized enterprise in the period.

(2) For the purposes of [F60 Chapter 2] the company is to be treated as if it were not such an enterprise in the period.

F61 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F60 Words in s. 1081(2) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 17(2)

F61 S. 1081(3) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 17(3)

F62 1082 R&D expenditure of group companies U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F62 S. 1082 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 18

F63 1083 Refunds of expenditure treated as income chargeable to tax U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F63 S. 1083 omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 19

1084 Artificially inflated claims for relief or tax credit U.K.

(1) To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for the purposes mentioned in subsection (2).

(2) Those purposes are—

(a) determining for an accounting period relief to which a company is entitled under [F64 Chapter 2] , and

(b) determining for an accounting period R&D tax credits to which a company is entitled under Chapter 2.

(3) Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain—

(a) relief under [F65 Chapter 2] to which it would not otherwise be entitled,

(b) relief under [F65 Chapter 2] of a greater amount than that to which it would otherwise be entitled,

(c) an R&D tax credit under Chapter 2 to which it would not otherwise be entitled, or

(d) an R&D tax credit under Chapter 2 of a greater amount than that to which it would otherwise be entitled.

(4) In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Textual Amendments

F64 Words in s. 1084(2)(a) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 20(2)

F65 Words in s. 1084(3)(a)(b) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 20(3)

Chapter 7 U.K. [F66 Relief for large companies: vaccine research etc]

Textual Amendments

F66 Pt. 13 Ch. 7 heading substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 30

Introductory U.K.

1085 Overview of Chapter U.K.

(1) This Chapter provides for relief for expenditure incurred by [F67 large companies] on research and development relating to vaccine or medicine research.

(2) Section 1086 defines “qualifying R&D activity” (that is, the research and development in relation to which relief under this Chapter is available).

[F68 (3) The relief available is a deduction under section 1087 (the amount of which is determined under section 1091).]

F69 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F70 (5) Sections 1098 to 1102 contain provision about when a company's expenditure is “qualifying Chapter 7 expenditure” for the purposes of obtaining relief and when such expenditure is “for” an accounting period.]

F71 (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) Section 1112 contains an anti-avoidance provision dealing with artificially inflated claims for relief F72 ... under this Chapter.

(8) See also section 1137 for provision about the accounting periods of a company which is not within the charge to corporation tax.

Textual Amendments

F67 Words in s. 1085(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 21(2)

F68 S. 1085(3) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 21(3)

F69 S. 1085(4) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 21(4)

F70 S. 1085(5) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 21(5)

F71 S. 1085(6) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 21(6)

F72 Words in s. 1085(7) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 21(7)

1086 Meaning of “qualifying R&D activity” U.K.

(1) For the purposes of this Chapter “qualifying R&D activity” means research and development relating to—

(a) vaccines or medicines for the prevention or treatment of tuberculosis,

(b) vaccines or medicines for the prevention or treatment of malaria,

(c) vaccines for the prevention of infection by human immunodeficiency virus, or

(d) vaccines or medicines for the prevention of the onset, or for the treatment, of acquired immune deficiency syndrome resulting from infection by human immunodeficiency virus in prescribed clades only.

(2) For the purposes of subsection (1) “prescribed clade” means clade A, C, D or E or such other clade or clades as the Treasury may by regulations prescribe.

(3) The Treasury may make provision by regulations further defining the purposes referred to in subsection (1).

(4) In subsection (1) references to vaccines or medicines are to vaccines or medicines for use in humans.

Reliefs U.K.

1087 Deduction in calculating profits of trade U.K.

(1) A company is entitled to corporation tax relief for an accounting period if it meets conditions AF73 ... [F74 , C and D].

(2) Condition A is that the company has incurred expenditure which is qualifying Chapter 7 expenditure for the period.

F75 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Condition C is that the company is carrying on a trade in the period.

[F76 (4A) Condition D is that the company is a large company throughout the period.]

(5) For the company to obtain the relief it must make a claim.

(6) The relief is a deduction in calculating the profits of the trade for the period.

[F77 (7) For the amount of the deduction see section 1091.]

(8) This section is subject to section 1113 (cap on total R&D aid in relation to a particular research and development project).

(9) See also—

(a) section 1088 for the declaration that a F78 ... company is required to make in a claim under this section,

F79 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) section 1098 for the meaning of “qualifying Chapter 7 expenditure”, and

(d) [F80 section 1100] for the meaning of qualifying Chapter 7 expenditure “for” an accounting period.

Textual Amendments

F73 Word in s. 1087(1) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 7(3)(a)

F74 Words in s. 1087(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 22(2)

F75 S. 1087(3) omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 7(3)(b)

F76 S. 1087(4A) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 22(3)

F77 S. 1087(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 22(4)

F78 Word in s. 1087(9)(a) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 22(5)(a)

F79 S. 1087(9)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 22(5)(b)

F80 Words in s. 1087(9)(d) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 22(5)(c)

1088 [F81 Declaration about effect of relief] U.K.

(1) This section applies if a F82 ... company claims relief under section 1087.

(2) The claim must include a declaration that the availability of the relief claimed has resulted in an increase in—

(a) the amount, scope or speed of the research and development undertaken by the company, or

(b) the company's expenditure on research and development.

Textual Amendments

F81 S. 1088 heading substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 23(2)

F82 Word in s. 1088(1) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 23(1)

F83 1089 SMEs: amount of deduction U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F83 S. 1089 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 24

F84 1090 Modification of section 1089 for larger SMEs U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F84 S. 1090 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 24

1091 [F85 Amount of deduction] U.K.

(1) This section applies if—

(a) a company makes a claim under section 1087 for relief to which it is entitled for an accounting period, F86 ...

F86 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) The amount of the deduction under that section is the sum of—

(a) amount A, and

(b) amount B.

(3) Amount A is 40% of so much of the company's qualifying Chapter 7 expenditure for the period as is allowable as a deduction in calculating for corporation tax purposes the profits for the period of a trade carried on by the company.

(4) Amount B is 140% of so much of the company's qualifying Chapter 7 expenditure for the period that is not so allowable.

(5) The deduction is in addition to any other deduction in respect of the expenditure.

(6) See sections 1098 and 1100 for the meaning of “qualifying Chapter 7 expenditure” and provision about when such expenditure is “for” an accounting period.

Textual Amendments

F85 S. 1091 heading substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 25(2)

F86 S. 1091(1)(b) and the word immediately preceding it omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 25(1)

F87 1092 SMEs: deemed trading loss for pre-trading expenditure U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F87 Ss. 1092-1096 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

F87 1093 Modification of section 1092 for larger SMEs U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F87 Ss. 1092-1096 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

F87 1094 Relief only available to SME where company is going concern U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F87 Ss. 1092-1096 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

Deemed trading loss: further provision U.K.

F87 1095 Elections under section 1092 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F87 Ss. 1092-1096 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

F87 1096 Treatment of deemed trading loss under section 1092 U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F87 Ss. 1092-1096 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

Threshold U.K.

F88 1097 R&D threshold U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F88 S. 1097 omitted (with effect in accordance with Sch. 3 para. 39 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 7(5)

Qualifying expenditure U.K.

1098 Meaning of “qualifying Chapter 7 expenditure” U.K.

For the purposes of this Part a company's “qualifying Chapter 7 expenditure” means—

(a) its qualifying expenditure on in-house direct research and development (see section 1101), and

(b) its qualifying expenditure on contracted out research and development (see section 1102).

F89 1099 SMEs: qualifying expenditure “for” an accounting period U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F89 S. 1099 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 26

1100 [F90 Qualifying expenditure “for” an accounting period] U.K.

[F91 (1) A company's qualifying Chapter 7 expenditure is “for” an accounting period if it is allowable as a deduction in calculating for corporation tax purposes the profits for the period of a trade carried on by the company.]

(2) Expenditure allowable as a deduction for the purposes of subsection (1) includes expenditure so allowable because of section 61 (pre-trading expenses).

Textual Amendments

F90 S. 1100 heading substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 27(2)

F91 S. 1100(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 27(1)

1101 Qualifying expenditure on in-house direct R&D U.K.

(1) A company's “qualifying expenditure on in-house direct research and development” means expenditure incurred by it in relation to which each of conditions A to E is met.

(2) Condition A is that the expenditure is attributable to qualifying R&D activity (see section 1086) undertaken by the company itself.

(3) Condition B is that the qualifying R&D activity to which the expenditure is attributable is relevant research and development in relation to the company.

(4) Condition C is that the expenditure is—

(a) incurred on staffing costs (see section 1123),

(b) incurred on software or consumable items (see section 1125),

(c) qualifying expenditure on externally provided workers (see section 1127), or

(d) incurred on relevant payments to the subjects of a clinical trial (see section 1140).

(5) Condition D is that the expenditure is not incurred by the company in carrying on activities which are contracted out to the company by any person.

(6) Condition E is that the expenditure is not subsidised (see section 1138).

(7) See sections 1124, 1126 [F92 to 1126B] and 1132 for provision about when expenditure within subsection (4)(a), (b) or (c) is attributable to relevant research and development.

Textual Amendments

F92 Words in s. 1101(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(o)

1102 Qualifying expenditure on contracted out R&D U.K.

(1) A company's “qualifying expenditure on contracted out research and development” means expenditure in relation to which each of conditions A to D is met.

(2) Condition A is that the expenditure is incurred in making the qualifying element of a sub-contractor payment (see sections 1134 to 1136) to a sub-contractor.

(3) Condition B is that the expenditure is attributable to qualifying R&D activity (see section 1086) undertaken by the sub-contractor itself.

(4) Condition C is that the R&D activity to which the expenditure is attributable is relevant research and development in relation to the company.

(5) Condition D is that the expenditure is not subsidised (see section 1138).

(6) See sections 1124, 1126 [F93 to 1126B] and 1132 for provision about when particular kinds of expenditure are attributable to relevant research and development.

Textual Amendments

F93 Words in s. 1102(6) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(4)(p)

Tax credit: entitlement and payment U.K.

F94 1103 Entitlement to and payment of tax credit U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1104 Meaning of “Chapter 7 surrenderable loss” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1105 Amount of trading loss which is “unrelieved” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1106 Tax credit only available where company is going concern U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

Amount of tax credit U.K.

F94 1107 Amount of tax credit U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1108 Total amount of company's PAYE and NIC liabilities U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

Supplementary U.K.

F94 1109 Payment of tax credit U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1110 Tax credit payment not income of company U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

F94 1111 Restriction on losses carried forward where tax credit claimed U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F94 Ss. 1103-1111 omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 28

Tax avoidance U.K.

1112 [F95 Artificially inflated claims for relief] U.K.

(1) To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be disregarded for [F96 the purpose of determining for an accounting period relief to which a company is entitled under this Chapter].

F97 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Arrangements are entered into wholly or mainly for a “disqualifying purpose” if their main object, or one of their main objects, is to enable a company to obtain—

(a) relief under this Chapter to which it would not otherwise be entitled, [F98 or]

(b) relief under this Chapter of a greater amount than that to which it would otherwise be entitled,

F99 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F99 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) In this section “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

Textual Amendments

F95 S. 1112 heading substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 29(5)

F96 Words in s. 1112(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 29(2)

F97 S. 1112(2) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 29(3)

F98 Word in s. 1112(3)(a) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 29(4)(a)

F99 S. 1112(3)(c)(d) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 29(4)(b)

Chapter 8 U.K. Cap on aid for R&D

1113 Cap on R&D aid under Chapter 2 or 7 U.K.

(1) A company is only entitled to qualifying R&D relief in respect of expenditure attributable to a research and development project if, or so far as, the condition in subsection (2) is met at that time.

(2) The condition is that the total R&D aid in respect of expenditure by the company attributable to the project would not exceed 7.5 million euros.

(3) In subsection (2) “total R&D aid” means the total R&D aid calculated—

(a) in accordance with section 1114, and

(b) as if a claim or election had been made for the R&D relief mentioned in subsection (1).

(4) In this Chapter “qualifying R&D relief” means any relief or R&D tax credit under—

(a) Chapter 2 (relief for SMEs: cost of R&D incurred by SME), or

(b) Chapter 7 (relief for F100 ... large companies: expenditure on vaccine research etc).

(5) The Treasury may by regulations—

(a) increase the amount specified in subsection (2), and

(b) amend this Chapter (apart from this section).

Textual Amendments

F100 Words in s. 1113(4)(b) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 31(2)

1114 Total R&D aid U.K.

For the purposes of section 1113 the total R&D aid, in respect of expenditure by a company (“the claimant”) attributable to a research and development project, is calculated as follows—

where—

A is the total R&D aid,

TC is the tax credits (see section 1115),

R is the actual reduction in tax liability (see section 1116),

P is the potential relief (see section 1117),

CT is the main rate of corporation tax at the time when the total R&D aid is calculated [F101 (or, in the case of a ring fence trade (within the meaning of section 277 of CTA 2010) the main ring fence profits rate at that time)], and

N is the notional relief (see section 1118).

Textual Amendments

F101 Words in s. 1114 inserted (with effect in accordance with Sch. 1 para. 22 of the amending Act) by Finance Act 2014 (c. 26), Sch. 1 para. 11

1115 “The tax credits” U.K.

(1) In section 1114 “the tax credits” means the total R&D tax credits that have been paid to the claimant under Chapter 2 F102 ... in respect of expenditure attributable to the research and development project.

(2) An R&D tax credit that has been claimed but not paid or applied is treated for the purposes of subsection (1) as if it had been paid.

(3) Subsection (2) does not apply if the claimant has been informed by Her Majesty's Revenue and Customs that the R&D tax credit will not be paid or applied.

Textual Amendments

F102 Words in s. 1115(1) omitted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by virtue of Finance Act 2012 (c. 14), Sch. 3 para. 31(3)

1116 “The actual reduction in tax liability” U.K.

(1) In section 1114 “the actual reduction in tax liability” means the sum of—

(a) amounts within subsection (2), and

(b) amounts within subsection (3).

(2) The amounts within this subsection are those by which the liability of the claimant to pay corporation tax has been reduced in any accounting period in consequence of qualifying R&D relief in respect of expenditure attributable to the research and development project.

(3) The amounts within this subsection are those by which the liability of any other company (“C”) to pay corporation tax has been reduced in any accounting period in consequence of a surrendered loss.

(4) A “surrendered loss” means a loss which—

(a) is surrendered to C by the claimant under [F103 Part 5 of CTA 2010] (surrender of relief between members of groups and consortia), and

(b) arises in consequence of qualifying R&D relief in respect of expenditure attributable to the project.

Textual Amendments

F103 Words in s. 1116(4)(a) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 675 (with Sch. 2)

1117 “The potential relief” U.K.

(1) In section 1114 “the potential relief” means the total amount of any qualifying R&D relief (other than an R&D tax credit)—

(a) in respect of which the claimant has made a claim or election, but

(b) which, as at the day on which the total R&D aid is calculated in accordance with section 1114, has not been brought into account by the claimant or by any other company.

(2) Qualifying R&D relief is not to be counted for the purposes of subsection (1) if the claimant has been informed by Her Majesty's Revenue and Customs that it is not entitled to the relief.

1118 “The notional relief” U.K.

(1) In section 1114 “the notional relief” means the total amount of relief that the claimant could have claimed under Chapter 5 (relief for large companies) in any accounting period in respect of qualifying expenditure attributable to the research and development project if the claimant had been a large company throughout the period.

(2) “Qualifying expenditure” means expenditure that, in the accounting period in question, was—

(a) qualifying Chapter 2 expenditure (see section 1051), or

(b) qualifying Chapter 7 expenditure (see section 1098).

Chapter 9 U.K. Supplementary

SMEs and large companies U.K.

1119 “Small or medium-sized enterprise” U.K.

(1) In this Part “small or medium-sized enterprise” means a micro, small or medium-sized enterprise as defined in Commission Recommendation (EC) No 2003/361, but subject to the qualifications in section 1120.

(2) The Treasury may by order amend this section or section 1120 to substitute a different definition of “small or medium-sized enterprise” for the purposes of this Part.

(3) This section is subject to section 1081 (insurance companies to be treated as large companies for purposes of [F104 Chapter 2] ).

Textual Amendments

F104 Words in s. 1119(3) substituted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 21

1120 Qualifications to section 1119 U.K.

(1) This section contains qualifications to the definition of small or medium-sized enterprise in section 1119.

(2) The qualifications are—

Qualification 1

In Article 2(1) of the Annex, the references to 250 persons, 50 million euros and 43 million euros are to be read as references to 500 persons, 100 million euros and 86 millions euros (respectively).

Qualification 2

If each of conditions A to D is met, Article 4(2) of the Annex is to be disregarded in determining whether a company (“C”) is within the definition of small or medium-sized enterprise in section 1119 for an accounting period in which C exceeds the employee limit or the financial limits.

(3) Condition A is that C is a micro, small or medium-sized enterprise as defined in the Recommendation (or would be if the Annex were read as set out in qualification 1), disregarding any partner enterprise or linked enterprise.

(4) Condition B is that a partner enterprise or linked enterprise to which C is related exceeds the employee limit or both of the financial limits, disregarding the number of employees, the annual turnover and the annual balance sheet totals of C.

(5) Condition C is that the number of employees, annual turnover or annual balance sheet total (as the case may be) of the partner enterprise or linked enterprise to which C is related has been taken into account in determining whether C exceeded the employee limit or the financial limits.

(6) Condition D is that, taken alone, C satisfies the employee limit and at least one of the financial limits.

(7) In this section—

(a) references to the Recommendation are to the Commission Recommendation mentioned in section 1119(1),

(b) references to the Annex are to the Annex to the Recommendation,

(c) references to the employee limit are to the limit on the number of employees contained in Article 2(1) of the Annex (read as set out in qualification 1), and

(d) references to the financial limits are to the limits on the annual turnover and balance sheet totals contained in Article 2(1) of the Annex (read as set out in qualification 1).

1121 “Larger SME” U.K.

References in this Part to a “larger SME” are to a company which is a small or medium-sized enterprise by virtue of qualification 1 in section 1120.

1122 “Large company” U.K.

In this Part “large company” means a company that is not a small or medium-sized enterprise.

Staffing costs U.K.

1123 “Staffing costs” U.K.

(1) For the purposes of this Part the staffing costs of a company are amounts to which subsection (2), (3), (4), (5) or (7) applies.

(2) This subsection applies to an amount paid by the company to a director or an employee of the company which—

(a) is earnings consisting of money, and

(b) is paid because of the director's or employee's employment.

(3) This subsection applies to an amount paid by the company to a director or an employee of the company, other than an amount paid in respect of benefits in kind, if—

(a) the amount is paid in respect of expenses paid by the director or employee, and

(b) the amount is paid because of the director's or employee's employment.

(4) This subsection applies to secondary Class 1 national insurance contributions paid by the company.

(5) This subsection applies to compulsory contributions paid by the company in respect of benefits for directors or employees of the company under the social security legislation of an EEA State (other than the United Kingdom) or Switzerland.

(6) In subsection (5) “social security legislation” means legislation relating to any of the branches of social security listed in Article 3(1) of Regulation (EC) No. 883/2004 of the European Parliament and of the Council on the co-ordination of social security systems (as amended from time to time).

(7) This subsection applies to contributions paid by the company to a pension fund operated for the benefit of directors or employees of the company.

(8) In subsection (7) “pension fund” means a scheme, fund or other arrangement established and maintained (whether in the United Kingdom or elsewhere) for the purpose of providing pension benefits.

For this purpose “scheme” includes a deed, agreement or series of agreements.

(9) In subsection (8) “pension benefits” means pensions, retirement annuities, allowances, lump sums, gratuities or other superannuation benefits (with or without subsidiary benefits).

1124 Staffing costs: attributable expenditure U.K.

(1) This section applies for the purposes of this Part to identify when staffing costs are attributable to relevant research and development.

(2) The costs which are so attributable are those paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development.

(3) Subsection (4) applies if a director or employee is partly engaged directly and actively in relevant research and development.

(4) The appropriate proportion of the staffing costs relating to the director or employee is treated as attributable to relevant research and development.

(5) Subsection (6) applies if persons provide services, such as secretarial or administrative services, in support of activities carried on by others.

(6) Those persons are not, as a result of providing those services, to be treated as themselves directly and actively engaged in those activities.

Software or consumable items U.K.

1125 “Software or consumable items” U.K.

(1) For the purposes of this Part expenditure on software or consumable items means expenditure on—

(a) computer software, or

(b) consumable or transformable materials.

(2) For the purposes of subsection (1)(b) consumable or transformable materials include water, fuel and power.

1126 Software or consumable items: attributable expenditure U.K.

(1) This section applies for the purposes of this Part to identify when expenditure on software or consumable items is attributable to relevant research and development.

(2) Expenditure on software or consumable items is so attributable if the software or consumable items are employed directly in relevant research and development.

(3) Subsection (4) applies if software or consumable items are partly employed directly in relevant research and development.

(4) The appropriate proportion of the expenditure on the software or consumable items is treated as attributable to relevant research and development.

(5) Subsection (6) applies if software or consumable items are employed in the provision of services, such as secretarial or administrative services, in support of other activities.

(6) The software or consumable items are not, as a result of their employment in the provision of those services, to be treated as themselves directly employed in those activities.

[F105 (7) This section is subject to sections 1126A and 1126B.]

Textual Amendments

F105 S. 1126(7) inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(2)

[F106 1126A Attributable expenditure: special rules U.K.

(1) Expenditure on consumable items is not to be treated as attributable to relevant research and development if—

(a) the relevant research and development relates to an item that is produced in the course of the research and development,

(b) the consumable items form part of the item produced,

(c) the item produced is transferred by a relevant person for consideration in money or money's worth, and

(d) the transfer is made in the ordinary course of the relevant person's business.

(2) Expenditure on consumable items is not to be treated as attributable to relevant research and development if—

(a) the relevant research and development relates to a process of producing an item,

(b) the consumable items form part of an item produced in the course of that research and development,

(c) the item produced is transferred by a relevant person for consideration in money or money's worth, and

(d) the transfer is made in the ordinary course of the relevant person's business.

(3) If—

(a) the item produced as described in subsection (1) or (2) may be divided, and

(b) only a proportion (“the appropriate proportion”) of that item is transferred by a relevant person as described in subsection (1)(c) and (d) or (2)(c) and (d),

the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.

(4) If—

(a) a number of items are produced in the course of the relevant research and development described in subsection (2), and

(b) only a proportion (“the appropriate proportion”) of those items is transferred by a relevant person as described in subsection (2)(c) and (d),

the appropriate proportion of the expenditure on the consumable items is not to be treated as attributable to the relevant research and development.

(5) A reference in this section to producing an item includes a reference to preparing an item for transfer.

(6) For the purposes of this section a consumable item forms part of an item produced if—

(a) it is incorporated into the item produced, or

(b) it is turned into, or it and other materials are turned into, the item produced or a part of the item produced.

(7) A reference in this section to the transfer of an item is a reference to—

(a) the transfer of ownership of an item to another person (whether by sale or otherwise), or

(b) the transfer of possession of an item to another person (whether by letting on hire or otherwise),

and a reference to the transfer of an item includes, where the item is incorporated into another item, the transfer of that other item.

(8) For the purposes of this section the provision of information obtained in testing an item is not to be regarded as consideration for the transfer of that item.

(9) For the purposes of this section a transfer of an item produced in the course of research and development is not to be regarded as a transfer in the ordinary course of business if the item being transferred is waste.

(10) In this section—

• “item” includes any substance;

• “relevant person”, in relation to relevant research and development, means—

  (a)

  the company that incurs the cost of the research and development, whether it is undertaken by itself or contracted out,

  (b)

  the company to which the research and development is contracted out, whether it is undertaken by itself or contracted out,

  (c)

  the person (other than a company) who contracts out the research and development to a company and incurs the cost of the research and development,

  (d)

  the person (other than a company) to whom the research and development is contracted out, or

  (e)

  a person who is connected to a company or person described in paragraph (a), (b), (c) or (d).

Textual Amendments

F106 Ss. 1126A, 1126B inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(3)

1126B Attributable expenditure: further provision U.K.

(1) The Treasury may by regulations make provision for the purpose of identifying when expenditure on consumable items is attributable to relevant research and development, including provision modifying the effect of section 1126 or 1126A.

(2) Regulations under this section may include provision about—

(a) the circumstances in which expenditure on consumable items employed directly in relevant research and development is, or is not, to be treated as attributable to that relevant research and development;

(b) the circumstances in which consumable items are, or are not, to be treated as employed directly in relevant research and development.

(3) Regulations under this section may—

(a) make different provision for different purposes;

(b) make incidental, consequential, supplementary or transitional provision or savings.

(4) Regulations under this section may amend—

(a) section 1126;

(b) section 1126A;

(c) any other provision of this Act, if that is appropriate in consequence of provision made under paragraph (a) or (b).

(5) Regulations under this section may make provision that has effect in relation to expenditure incurred before the making of the regulations, provided that it does not increase any person's liability to tax.]

Textual Amendments

F106 Ss. 1126A, 1126B inserted (with effect in accordance with s. 28(7) of the amending Act) by Finance Act 2015 (c. 11), s. 28(3)

Qualifying expenditure on externally provided workers U.K.

1127 “Qualifying expenditure on externally provided workers” U.K.

(1) For the purposes of this Part a company incurs expenditure on externally provided workers if—

(a) it makes a payment (a “staff provision payment”) to another person (the “staff provider”), and

(b) the payment is in respect of the supply to the company, by or through the staff provider, of the services of any externally provided workers.

(2) The company's qualifying expenditure on externally provided workers is determined in accordance with section 1129 or 1131.

(3) In sections 1128 to 1131 references to “staff provider” and “staff provision payment” are to be read in accordance with subsection (1).

1128 “Externally provided worker” U.K.

(1) For the purposes of this Part a person is an “externally provided worker” in relation to a company if each of conditions A to G is met.

(2) Condition A is that the worker is an individual.

(3) Condition B is that the worker is not a director or employee of the company.

(4) Condition C is that the worker personally provides, or is under an obligation personally to provide, services to the company.

(5) Condition D is that the worker is subject to (or to the right of) supervision, direction or control by the company as to the manner in which those services are provided.

(6) Condition E is that the worker's services are supplied to the company through a staff provider (whether or not the worker is a director or employee of the staff provider or any other person).

(7) Condition F is that the worker provides, or is under an obligation to provide, those services personally to the company under the terms of a contract between the worker and [F107 a person other than the company (the “staff controller”)].

(8) Condition G is that the provision of those services does not constitute the carrying on of activities contracted out by the company.

[F108 (9) In sections 1129 to 1131 references to “staff controller” are to be read in accordance with subsection (7).]

Textual Amendments

F107 Words in s. 1128(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 34(2)

F108 S. 1128(9) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 34(3)

1129 Qualifying expenditure on externally provided workers: connected persons U.K.

(1) This section applies if—

(a) a company makes a staff provision payment,

[F109 (b) the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and

(c) in accordance with generally accepted accounting practice—

(i) the whole of the staff provision payment has been brought into account in determining the staff provider's profit or loss for a relevant period, and

(ii) all of the relevant expenditure of each staff controller has been brought into account in determining the staff controller's profit or loss for a relevant period.]

(2) The company's qualifying expenditure on externally provided workers is—

(a) the entire staff provision payment, or

(b) if less, an amount equal to [F110 the aggregate of the relevant expenditure of each staff controller].

(3) “Relevant expenditure”[F111 , in relation to a staff controller,] means expenditure that—

(a) is incurred by the [F112 staff controller] in providing for the company the externally provided workers to whom the staff provision payment relates,

(b) is not of a capital nature, and

(c) is incurred on staffing costs or agency workers' remuneration.

(4) “Relevant period”[F113 , in relation to a person,] means a period—

(a) for which accounts are drawn up for the [F114 person], and

(b) that ends not more than 12 months after the end of the company's period of account in which the staff provision payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.

(5) In section 1123 (meaning of “staffing costs”), which applies for the purpose of determining whether [F115 the expenditure of a staff controller] meets the requirements of subsection (3)(c), references to a company are to be read as references to [F116 a staff controller].

(6) “Agency workers' remuneration”, in the case of any person who is an externally provided worker in relation to the company, means remuneration that—

(a) is receivable by the worker under or in consequence of the contract mentioned in section 1128(7), but

(b) does not constitute employment income of the worker apart from Chapter 7 of Part 2 of ITEPA 2003 (application of provisions to agency workers).

(7) Any apportionment of expenditure of the company or [F117 a staff controller] necessary for the purposes of this section is to be made on a just and reasonable basis.

Textual Amendments

F109 S. 1129(1)(b)(c) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(2)

F110 Words in s. 1129(2)(b) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(3)

F111 Words in s. 1129(3) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(4)(a)

F112 Words in s. 1129(3)(a) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(4)(b)

F113 Words in s. 1129(4) inserted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(5)(a)

F114 Words in s. 1129(4)(a) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(5)(b)

F115 Words in s. 1129(5) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(6)(a)

F116 Words in s. 1129(5) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(6)(b)

F117 Words in s. 1129(7) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 35(7)

1130 Election for connected persons treatment U.K.

[F118 (1) If—

(a) a company makes a staff provision payment, and

(b) the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,

they may jointly elect that section 1129 is to apply to them as if they were all connected.]

(2) Any such election [F119 has effect] in relation to all staff provision payments paid under the same contract or other arrangement.

(3) The election must be made by notice in writing to an officer of Revenue and Customs.

(4) The notice must be given before the end of the period of two years beginning immediately after the end of the company's accounting period in which the contract or other arrangement is entered into.

(5) An election under this section is irrevocable.

Textual Amendments

F118 S. 1130(1) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 36(2)

F119 Words in s. 1130(2) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 36(3)

1131 Qualifying expenditure on externally provided workers: other cases U.K.

(1) This section applies if—

(a) a company makes a staff provision payment,

[F120 (b) the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected,] and

(c) no election is made under section 1130.

(2) The company's qualifying expenditure on externally provided workers is 65% of the staff provision payment.

Textual Amendments

F120 S. 1131(1)(b) substituted (with effect in accordance with Sch. 3 para. 38 of the amending Act) by Finance Act 2012 (c. 14), Sch. 3 para. 37

1132 External workers: attributable expenditure U.K.

(1) This section applies for the purposes of this Part to identify when qualifying expenditure on externally provided workers is attributable to relevant research and development.

(2) Qualifying expenditure on externally provided workers is so attributable if the workers are directly and actively engaged in relevant research and development.

(3) Subsection (4) applies if an externally provided worker is partly engaged directly and actively in relevant research and development.

(4) The appropriate proportion of the qualifying expenditure relating to the worker is treated as attributable to relevant research and development.

(5) Subsection (6) applies if persons provide services (such as secretarial or administrative services) in support of activities carried on by others.

(6) Those persons are not, as a result of providing those services, to be treated as themselves directly and actively engaged in those activities.

Sub-contractor payments U.K.

1133 “Sub-contractor” and “sub-contractor payment” U.K.

(1) In this Part a “sub-contractor payment” means a payment made by a company to another person (“the sub-contractor”) in respect of research and development contracted out by the company to that person.

(2) Sections 1134 to 1136 apply if a company makes a sub-contractor payment.

(3) They apply for the purpose of determining the qualifying element of the payment for the purposes of—

• section 1053(1)(a),

• F121 ... and

• section 1102(2).

Textual Amendments

F121 Words in s. 1133(3) omitted (with effect in accordance with Sch. 15 paras. 28, 29 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 22

1134 Qualifying element of sub-contractor payment: connected persons U.K.

(1) This section applies if—

(a) a company makes a sub-contractor payment,

(b) the company and the sub-contractor are connected, and

(c) in accordance with generally accepted accounting practice, the whole of the sub-contractor payment and all of the sub-contractor's relevant expenditure have been brought into account in determining the sub-contractor's profit or loss for a relevant period.

(2) The qualifying element of the sub-contractor payment is—

(a) the entire payment, or

(b) if less, an amount equal to the sub-contractor's relevant expenditure.

(3) “Relevant expenditure” of the sub-contractor means expenditure that—

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

(b) is not of a capital nature,

(c) is incurred on staffing costs, software or consumable items or relevant payments to the subjects of a clinical trial or is qualifying expenditure on externally provided workers, and

(d) is not subsidised.

(4) “Relevant period” means a period—

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

(b) that ends not more than 12 months after the end of the company's period of account in which the sub-contractor payment is, in accordance with generally accepted accounting practice, brought into account in determining the company's profit or loss.

(5) In the following sections, which apply for the purpose of determining whether a sub-contractor's expenditure meets the requirements of subsection (3)(c) and (d)—

(a) section 1123 (staffing costs),

(b) sections 1127 to 1131 (qualifying expenditure on externally provided workers), and

(c) section 1138 (subsidised expenditure),

references to a company are to be read as references to the sub-contractor.

(6) Any apportionment of expenditure of the company or the sub-contractor necessary for the purposes of this section is to be made on a just and reasonable basis.

1135 Election for connected persons treatment U.K.

(1) A company and a sub-contractor who are not connected may jointly elect that section 1134 is to apply to them as if they were connected.

(2) Any such election must be made in relation to all sub-contractor payments paid under the same contract or other arrangement.

(3) The election must be made by notice in writing to an officer of Revenue and Customs.

(4) The notice must be given before the end of the period of two years beginning immediately after the end of the company's accounting period in which the contract or other arrangement is entered into.

(5) An election under this section is irrevocable.

1136 Qualifying element of sub-contractor payment: other cases U.K.

(1) This section applies if—

(a) a company makes a sub-contractor payment,

(b) the company and the sub-contractor are not connected persons, and

(c) no election is made under section 1135.

(2) The qualifying element of the sub-contractor payment is 65% of the sub-contractor payment.

Miscellaneous U.K.

1137 Accounting periods: company not within charge to corporation tax U.K.

(1) This section applies to a company if—

(a) it is not within the charge to corporation tax, and

(b) it incurs qualifying Chapter 2 expenditure or qualifying Chapter 7 expenditure.

(2) For the purposes of this Part the company is treated as having the accounting periods it would have if—

(a) it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and

(b) it had started to carry on that trade when it started to carry on relevant research and development.

1138 “Subsidised expenditure” U.K.

(1) For the purposes of this Part a company's expenditure is treated as subsidised—

(a) if a notified State aid is, or has been, obtained in respect of—

(i) the whole or part of the expenditure, or

(ii) any other expenditure (whenever incurred) attributable to the same research and development project,

(b) to the extent that a grant or subsidy (other than a notified State aid) is obtained in respect of the expenditure,

(c) to the extent that it is otherwise met directly or indirectly by a person other than the company.

(2) In this section “notified State aid” means a State aid notified to and approved by the European Commission.

(3) For this purpose the following are not State aids—

(a) relief under this Part, F122 ...

(b) R&D tax credits under this Part.

[F123 (c) R&D expenditure credits under Chapter 6A of Part 3.]

(4) For the purposes of this Part a notified State aid, grant, subsidy or payment that is not allocated to particular expenditure is to be allocated to expenditure of the recipient on a just and reasonable basis.

Textual Amendments

F122 Word in s. 1138(3)(a) omitted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by virtue of Finance Act 2013 (c. 29), Sch. 15 para. 2(3)

F123 S. 1138(3)(c) inserted (with effect in accordance with Sch. 15 para. 27 of the amending Act) by Finance Act 2013 (c. 29), Sch. 15 para. 2(3)

F124 1139 “Intellectual property” U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F124 S. 1139 omitted (with effect in accordance with s. 13(8) of the amending Act) by virtue of Finance (No. 3) Act 2010 (c. 33), s. 13(6)

1140 “Relevant payments to the subjects of a clinical trial” U.K.

(1) For the purposes of this Part “relevant payment”, in relation to a subject of a clinical trial, means a payment made to the subject for participating in the trial.

(2) For the purposes of this Part “clinical trial” means an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure.

1141 “Payment period” U.K.

In this Part a “payment period” means a period—

(a) which ends on the fifth day of a month, and

(b) for which the company is liable to account for income tax and national insurance contributions to an officer of Revenue and Customs.

1142 “Qualifying body” U.K.

(1) For the purposes of this Part “qualifying body” means—

(a) a charity,

(b) an institution of higher education,

[F125 (c) an association (in the sense that word has in section 469(1)(a) of CTA 2010) which meets conditions A and B in that section (conditions for qualifying as a scientific research association),]

(d) a health service body within the meaning of [F126 section 986] of that Act, or

(e) any other body prescribed, or of a description prescribed, by the Treasury, by order, for the purposes of this Part.

(2) In subsection (1)(b) “institution of higher education” means—

(a) an institution within the higher education sector within the meaning of the Further and Higher Education Act 1992 (c. 13),

(b) an institution within the higher education sector within the meaning of Part 2 of the Further and Higher Education (Scotland) Act 1992 (c. 37) or a central institution within the meaning of the Education (Scotland) Act 1980 (c. 44), or

(c) a higher education institution within the meaning of Article 30(3) of the Education and Libraries (Northern Ireland) Order 1993 (S.I. 1993/2810 (N.I. 12)).

(3) An order under this section is to have effect in relation to the accounting periods or expenditure specified in the order.

(4) The order may specify accounting periods beginning, or expenditure incurred, before the time the order is made.

Textual Amendments

F125 S. 1142(1)(c) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 676(a) (with Sch. 2)

F126 Words in s. 1142(1)(d) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 676(b) (with Sch. 2)